IHTM45013 - Reduced rate for gifts to charity: calculating the baseline amount: where the charitable legacy is worded to meet the 10% test
Where a charitable legacy is worded to ensure the 10% test is met (IHTM45008), the calculation of the amount of the legacy will be straightforward where there is only one component in the estate. Following the example at IHTM45010, the charitable legacy will be 拢42,500. If the value of the estate changes, you will need to recalculate the charitable legacy with each change.
But, where there is more than one component to the estate, you should use the charitable legacy calculator to establish the extent of the charitable legacy. The calculator reflects the fact the baseline amount (IHTM45009) - of which 10% will be left to charity - will vary depending on the allocation of the nil-rate band between the components of the estate. And that in turn depends on the proportion that each component bears to the aggregate estate.
Example
Thomas died on 17 August 2012 leaving an estate valued at 拢800,000 after deduction of liabilities. His Will contained a clause which left a legacy to the National Trust equal to the amount that is necessary to qualify for the reduced rate. He was left a life interest in 拢250,000 under the Will of his wife.
The estate contains two components, a settled component, and a general component. The donated amount in the general component ensures that this component will qualify for the reduced rate. The settled component passes to Thomas鈥� children under his wife鈥檚 Will Trust so it does not qualify.
The charitable legacy calculator generates a value for the donated amount at 拢55,671. The calculations for each component are as follows:
Estate on death = 拢800,000
Legacy to charity (donated amount) -拢55,671
Chargeable transfer = 拢744,329 (step 1)
Less proportion of nil-rate band -拢243,287 (744,329 梅 (744,329 + 250,000) 脳 325,000 = 拢243,287)
Step 2 amount = 拢501,042
Add back legacy to charity +拢55,671
Baseline amount = 拢556,713 (step 3) (拢556,713 x 10% = 拢55,671)
Tax at 36% = 拢180,375.12
The tax on the settled component will be:
Chargeable transfer = 拢250,000
Less proportion of nil-rate band -拢81,713 (250,000 梅 (744,329 + 250,000) 脳325,000 = 拢81,713)
Excess = 拢168,287
Tax at 40% = 拢67,314.80