Clause carries lifetime gift burden?

Dear All,
We have two beneficiaries disputing who should carry the burden of IHT-liable lifetime gifts (LTGs).

Clause X reads:
‘b) The “Nil Rate Sum” means the maximum amount of cash I can give on the terms of this clause without incurring any liability to inheritance Tax on my death
c) Any other legacy given by my Will or any codicil should be paid in priority to the Nil Rate Sum’

The Clause X beneficiary asserts that Clause X does not mean that LTGs are deducted from the Clause X gift, and that LTGs should be deducted from the residuary share.

The residuary beneficiary asserts that Clause X means the LTGs should be deducted from the Clause X gift.

I had assumed and context suggests the latter, but want to double check.

Would be most grateful for advice or short answers for a consensus.

Many thanks.
Nicholas Russell

I start by asking if the residuary gift is to an IHT exempt beneficiary, e.g. spouse, civil partner, or charity?

If the residuary beneficiary is not IHT exempt, then the clause X gift is nil in any event if the estate has an IHT liability - at least some of which will be by reference to the clause X gift.

If the residuary gift is to an IHT exempt beneficiary, any lifetime gifts that reduce the IHT nil rate band available to the deceased at the time of their death will also reduce the amount of the nil rate band legacy. If, say lifetime gifts amounting to an aggregate transfer of value of £100,000 have been made, if the clause X gift exceeds £225,000 (nil rate band of £325,000 less the £100,000) IHT will be payable in respect of that excess over £225,000, the effect of which is that the clause X gift would create a liability on the testator‘s death.

A challenge may be if the residue is to a non-exempt beneficiary and the value of the estate for IHT purposes is close to the testator’s available nil rate band. As changes to the value of assets and liabilities arise the estate could become liable to IHT, or cease to be liable to IHT, so that until the final value for IHT has been established it cannot be known for certain whether or not Clause X actually confers any benefit upon the beneficiaries of that clause.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

1 Like

Thank you, Paul. Very clear explanation. Much appreciated.

Hi Paul

I’m sorry to jump on this topic a year later, but I have one of these ‘maximum amount without resulting in a liability to pay IHT’ type clauses currently. I have advised that the legacy will be nil because there is a substantial residuary estate that is left to non-exempt beneficiaries.This is now being queried by one of the legatees.

Nothing has changed on this front that I should be aware of, has it?

Many thanks

Consultant Solicitor
Setfords Solicitors

Hi Steve,
There is another thread that looks at what might be of interest to you in greater detail from a general estate IHT perspective rather than a PET one.
Search “without incurring any liability”


Thanks Nick

My mistake as I had actually read that thread too and had thought that this was the more recent one, but I see now that it is actually the other way around!

It seems that the consensus is that the legacy will be nil where there is a substantial residue passing to non-exempt beneficiaries.

Best regards