How is an estate calculated when one beneficiary has to pay 40% on a cash gift?

If an estate is to be split into three but one beneficiary receives a cash gift which incurs 40% IHT tax due to the benefactor passing away three years prior to giving the gift, how is the estate calculated? Is it calculated in this way? Total estate upon death + gift = X Is X divided by three with one share ( the share of the person who received the gift) being reduced by the 40% tax payable on the gift? If the cash gift was used to buy property, will any increase in the value of the property be added to the original amount of the gift resulting in a higher IHT payment, still taxed at 40% but higher gift amount so higher bill? If property value is taken into account, for how long would this be? Would it be up to the date of the benefactors/ gift givers death? Thank you.

Hi,

It is important to note that the estate should be distributed according to:

• the will
• the law if there is no will

HMRC is concerned with the taxation of the estate and not how the legal personal representatives distribute the assets. It is the personal representatives’/executors’ legal obligation to ensure it is distributed correctly in accordance to the will or the law. For further information on dealing with an estate of someone who has died, please refer to the guidance here:

Dealing with the estate of someone who's died: Distributing the estate - GOV.UK (www.gov.uk).

Further guidance on gifts and gifts with reservation of benefit can be seen here:

Work out Inheritance Tax due on gifts - GOV.UK (www.gov.uk).

Additionally, for detailed examples on how to calculate Inheritance Tax on gifts, please refer to page 18 of the following guidance:

IHT400 Notes IHT400_2022__Notes.pdf (publishing.service.gov.uk).

Thank you.