Where an executor is directed to buy an annuity, setting out the terms of that annuity (e.g. £5,000 a year before tax), the costs of purchase, etc., are part of the value of the annuity payable out of residue.
However, in this case, where the testator has directed that a specific sum be used to purchase an annuity, I anticipate the costs of purchase should be within the value gifted.
If the beneficiary exercised their entitlement to call for the capital value, they would receive the specified amount in full – why should the estate be worst off if the beneficiary goes ahead with the annuity?
If, say, the testator (T) had given the beneficiary a specific asset, the estate would have been liable for the reasonable costs of transferring that asset to the beneficiary. In this instance, though, T is giving the beneficiary something that did not exist as at the date of death, so there is no transfer from the estate to the beneficiary and I suggest, therefore, no costs that would normally be borne by the estate.