Double Grossing Up

We are advising the beneficiaries of an estate. The Executrix is the wife of the deceased and is being advised by separate solicitors.

We have now received the estate accounts from the solicitors acting for the Executrix.

The will contains various specific and pecuniary legacies, all expressed to be free of tax, left to the deceased’s wife, sons and other family members.

The will also divides the deceased’s shareholding in his trading company, between his wife, sons and family members. The legacy is expressed as free of tax, and BPR has been granted.

The residue is then divided as to £20,000.00 to the deceased’s brother, £20,000.00 to the deceased’s niece, and the balance between his two sons and his wife (1/3 share each).

The solicitors who have prepared the estate accounts have not included an estate at death account, so we cannot confirm how they calculated the IHT due. They have simply shown the amount of IHT paid as an estate liability in the capital account. In the distribution account, they have then added this sum back into the value of the residuary estate, and then deducted 50% of the IHT amount from each of the two sons.

Is this the correct way of dealing with this? As we have legacies free of tax, and part of residue is exempt and part non-exempt, should the solicitors preparing the estate accounts perform a double grossing calculation?

Elizabeth Cotton
Capital Law

Elizabeth

I hope you don’t mind me coming late to your query. I believe the allocation of IHT is incorrect, as you suggest.

The distribution comprised a number of legacies free of tax, and then the residue is split between exempt and non-exempt beneficiaries. In the circumstances, double grossing up will apply.

The various specific and pecuniary legacies will include the two cash legacies of £20,000, notwithstanding that they may have appeared in the residue clause of the will.

Two thirds of the genuine residue is chargeable, one third exempt.

The IHT should be apportioned between the grossed up legacies and the chargeable residue. The IHT on the grossed up legacies is a charge on residue, and will have to be borne by all three residuary beneficiaries (including the deceased’s wife). The IHT on the chargeable residue will be incident only on the two chargeable residuary beneficiaries.

The overall effect is that one third of the IHT incident on the grossed up legacies will be borne by the wife. The account can be rectified by having only the residue-apportioned IHT brought into the calculation in the distribution account.

Dale Ross
Blackadders LLP