A colleague is dealing with a taxable estate with both exempt and non-exempt residual beneficiaries.
The IHT clause reads as follows;
“I declare that the division of my estate shall be made without deduction of IHT payable by reason of my death and attributable to my residuary estate, such that each gift of residue shall bears it’s own IHT.”
The lay exec has deducted IHT from the whole of residue before distributing and there are differing views amongst the beneficiaries as to whether this is actually a re. Benham clause, or whether the distribution should have been re. Ratcliffe?
I may regret saying this (!) but it seems to be a fairly clear case of a re Ratcliffe division so that beneficiaries receive different net distributions. It calls for a pre-IHT division of residue and there is no mention of grossing up or calculating shares.
On the plus side: easier sums
On the negative side: the executor is in a real mess.
I think so too, although the wording could perhaps be more explicit. I feel the most significant words are “each gift shall bear its own IHT” which suggests to me that it was intended that taxable beneficiaries should bear inheritance tax in full and charitable beneficiaries should not bear any - in other words a Ratcliffe distribution. I will be interested to see if anyone here takes a contrary view, though. Also whether the executor did any Benham calculations in arriving at the IHT figure.
I think I’d agree too. Seems to me that the reference to dividing the shares “without” deduction of IHT means that the shares are divided first and then IHT is applied, and as Andrew J says, each share gets taxed according to whether it’s an exempt beneficiary (i.e. nil) or a non-exempt beneficiary (i.e. some).
Thank you, gentlemen! It seems the more beneficiaries that read it, the more confusing the interpretations became! I’ve passed your comments on to my colleague, Kerry, with grateful thanks.
Jane