Commentary

I4.168 Reduced rate where 10% left to charity―examples

IHT, trusts and estates

I4.168 Reduced rate where 10% left to charity―examples

I4.168 Reduced rate where 10% left to charity―examples

Example 1 — one component

Mr A died in 2019 leaving an estate valued at £750,000 after the deduction of liabilities.

He left, in his Will, £50,000 to a national charity. The applicable rate of tax for his estate is calculated as follows:

  1.  

    (i)     Deduct the £50,000 charitable donation from £750,000 (the net estate). This gives a figure of £700,000.

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    (ii)     Deduct £325,000 (the nil rate band) from £700,000. This gives a figure of £375,000.

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    (iii)     Add the £50,000 charitable donation back to £375,000. This gives a figure of £425,000 — the 'baseline amount'.

  1.  

    (iv)     Calculate 10% of the baseline amount. This is £42,500. This estate qualifies for the reduced rate of IHT because the charitable donation of £50,000 is more than 10% of the 'baseline amount'.

  1.  

    The IHT payable on the chargeable estate of £375,000 will be £135,000 compared to £150,000 if IHT was paid at

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