Scenario:
In her Will the deceased leaves her property free of tax to her son. The deceased then leaves the residue of her estate divided as to 50% to chargeable beneficiaries and as to 50% to exempt beneficiaries namely registered Charities.
The deceased provides in the residue Clause that “the exempt shares are to enjoy the full benefit of the exemptions so that as between an exempt share and a non exempt share the former is (if Inheritance Tax is payable in respect of my estate) to be of larger net value than the latter and the latter is not to be grossed up in order to produce a net equity value”
We believe that the Inheritance Tax treatment of the estate is as follows:
The grossed-up Inheritance Tax attributable to the specific bequest of the property will be divisible 50-50 between the exempt and non exempt beneficiaries.
The Inheritance Tax attributable to the residue of the estate passing to the chargeable beneficiaries will be deducted from the chargeable beneficiaries share only.
The exempt beneficiaries will therefore receive 50% of the residue less 50% of the tax attributable to the grossed-up specific bequest.
The chargeable beneficiaries receiving 50% of the residue will receive their share of the residue net of 50% of the grossed-up Inheritance Tax attributable to the specific bequest and the Inheritance Tax attributable to the residuary estate.
Is this the correct interpretation?
