How to calculate QSR
After any exemptions and the available nil rate band (NRB) (£0 - £325,000) have been deducted from the death estate, IHT is charged at a rate of 40%. QSR is then applied to reduce the tax liability, and is calculated using the following formula:
IHT paid previously is the amount of inheritance tax paid on the original transfer, this is then multiplied by the relevant percentage.
The % depends on the number of years between the date of the transfer to the recipient and their death:
- 100% if death was within one year of the original transfer
- 80% within two years
- 60% within three years
- 40% within four years
- 20% within five years
Increase in estate is the amount the recipient’s estate is increased by because of the original transfer. Increase in estate + IHT paid previously is that same figure plus the IHT paid in respect of that transfer.
Mr Jones inherited an asset valued at £100,000 in January 2021. 40% IHT was charged in respect of the asset. This increased the value of Mr Jones estate from £3,500,000 to £3,600,000 as the IHT was payable by the executors.
The IHT liability on Mr Jones’s estate will therefore be reduced by QSR of £28,571.
It’s likely that the estate you are administrating is far more complex than the above and there are other factors to consider when it comes to QSR, so we recommend seeking professional advice if you’re looking to make a QSR claim to ensure the correct tax is paid.