Hello
I’m dealing with an estate where following the death, the Will was varied to insert the STEP’s model clause to satisfy at least 10% (the charitable giving condition) in order to benefit from 36% rate of IHT.
The 10% has now been ascertained and schedule IHT430 completed. The charities and HMRC are being notified.
I’m now in the process of preparing draft estate accounts and wonder whether, in light of the 10% charitable gift,
both the charities and non-exempt residuary beneficiaries incur the burden of the overall administrative expenses (which effectively would reduce the 10% as calculated) OR
whether charities would receive precisely what is being communicated to HMRC on schedule IHT430 (which would effectively make them the legatees of the desirable amount) and the non-exempt beneficiaries (i.e. the remaining estate) would incur the cost of administering the estate.
Apologies if this question has already been dealt with in the past; I have been looking at the TDF but could not locate anything specifically dealing with the allocation of administrative expenses in such circumstances.
If the will had given the charity 10% of the residuary estate in the first instance, and 90% to non-charitable beneficiaries, residue would have borne the ladministration expenses, so why shouldn’t be any different where this is introduced by a deed of variation?
An interesting question because depending on how the clause is drafted, it could be read as a pecuniary legacy.
HMRC manual refers to the definition of baseline amount as:
*The calculation for the ‘baseline amount’ is set out in IHTA84/Sch1A/Para 5 (IHTM45009) and is, broadly, the value transferred by a chargeable transfer (IHTM04027), but after adding back the amount that qualifies for charity exemption.
And the relevant schedule 1A of the IHTA states: “estate means D’s estate immediately before death”
So I guess there could be an argument that because the calculation does not factor in admin expenses, the charity’s share / gift should not bear the burden. That said, this has not been my experience in practice and in reality it may depend on whether charity objects?
“I give such a sum as together with any other gifts to charity made under this my Will or any codicil shall constitute a donated amount equal to 10% of the Baseline Amount in relation to the General Component of my estate”.
It is further confirmed in the document that The Baseline Amount and General Component have the meaning given to those terms in IHT84/Sch1A and the reference to a gift to charity means a gift attributable to property of which section 23 of the Act applies.
If anyone out there has dealt with this in practice, could you please share your experience?