IHTM26121 | Step 4 - grossing up: background
From HM Revenue & Customs · Inheritance Tax Manual
Working out the tax liability involves two distinct processes:
valuing the chargeable transfer (), and
calculating the tax liability () on that value.
These two processes are completely separate. It is essential for you to remember this when grossing up ().
Grossing up is the term used to describe the process of calculating the chargeable part of the estate in accordance with
when the partly-exempt transfer rules () apply, and
a chargeable beneficiary takes a specific gift free of tax.
Although grossing up involves tax calculations, it is part of the process of valuing the chargeable transfer and is not part of the assessing process. The grossing calculations are governed by special rules () which distinguish them from the normal rules governing tax calculations on death.
provides a special rule where the deceased’s death estate includes property chargeable under more than one title, such as free estate () or settled property or joint property passing by survivorship. In the grossing calculations the property chargeable under each title (), referred to in as ‘different funds’, is looked at separately and in isolation.