Grossing up of an Immediate IHT Charge

Trusts Discussion
1

Our has client has just settled an amount into a discretionary Discounted Gift Trust where the discounted value plus previous 7 years CLTs exceeds her available NRB.

She is expecting a 20% lifetime IHT charge on the excess but the text books are telling us that the 20% immediate charge must be grossed up by 25% as it is assumed that any immediate tax due is paid by the donor and is therefore treated as a further gift.

How can she avoid this grossing up?.What if she borrows the immediate tax due from the trustees or the beneficiaries or they pay it on her behalf?

2

Grossing-up on a lifetime transfer into trust occurs where the donor is liable for the IHT payable on the transfer.

The donor is not liable if the recipient trustees agree to pay the IHT.

If therefore the trustees are not to pay the IHT then grossing-up arises (irrespective of how the liability is then discharged).

Malcolm Finney