Insufficient funds to settle legacies and inheritance tax

I have an estate where the only available NRB is £325K. The value of the estate is over the NRB and there is an inheritance tax liability of around £28K.

In brief the Will gifts ‘inheritance tax free’-

the Property to X
£100K to Y
£100K to Z
£10K to Charity A
£10K to Charity B.

After the property there is only £70K of cash available to settle the inheritance tax and cash legacies.

From my understand the property gift will be fine.
The cash legacies will then be reduced accordingly.
My question is do the cash legacies to the non-exempt beneficiaries suffer all the inheritance tax (despite the wording in the Will)?

Emily Corbishley
Lodge Brothers Legal Services

I assume that you are applying the abatement rules under the AEA 1925, ie that no contrary intention appears in the will - so residue abates completely, general legacies abate in part, and the specific legacy [of the property] is left intact.

In this case, I believe that testamentary expenses [including any IHT attributable to the specific legacy of the property as well as administration costs etc] should be payable out of the “legacy” fund - ie shared between legatees Y Z A and B; whilst tax attributable to the non-exempt general legatees should be borne by them.

However, the facts given do not permit us to assess the tax liability, so you may wish to consider s37 IHTA 1984 and/or IHTM26121 etc [to perhaps reduce the tax payable] - before considering whether [and if so how] the tax attributable to the general legacies could be attributed between the exempt and non-exempt legatees.

Kevin Mullen