Hello,
I am administering an estate with a gross value of £2,784,800 comprising:
• Property – £280,000
• Shares – £1,798,000
• Savings – £706,800
The deceased’s Will leaves the property and shares to a non-exempt beneficiary, expressed to be “free of tax”, and directs that all taxes are to be paid from residue.
The residuary estate is left entirely to charity. The estate benefits from the full £650,000 NRB/TRB. Liabilities are minimal.
IHT on the tax-free specific gifts will exceed the value of the residue, resulting in the charity receiving no effective benefit from the estate.
My question is:
In these circumstances, does “grossing-up” still apply, even though the exempt residuary beneficiary receives nothing, and the non-exempt beneficiary ends up taking the lion’s share of the estate?
I appreciate that the “free of tax” wording would normally trigger grossing-up. However, in this case the residuary gift will bear the burden of the IHT.
Any views or authority on whether grossing-up is strictly required in this case and whether HMRC accept this, would be very welcome.
Thank you in advance.
I can’t see that it would if you start from the premise that the entire estate is non-exempt and so the IHT will always be the IHT normally payable on a non-exempt estate of £2,784,800.
I think you will have to gross up.
I have just used the revenues calculator and using the figures and applying 36% tax rate after claiming the £650,000 nil rate band, I get a grossed up estate of £2881250 which taxed at 36% amounts to £1,037,250 whereas if grossing up was not applied the tax at 36% would be £1,002,528!
Patrick Moroney