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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:

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

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

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

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   (iv)ÌýÌýÌýÌý 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'.

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

Example 2 — gift to charity and spouse

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