Large legacies exceeding the Nil Rate Band

I have a single elderly lady (with no children) who wants to give a total of £450,000 free of tax to relatives and the residue to charity. Her estate is worth about a million. Clearly the rate for IHT would be reduced as the charitable gifts (at present value) exceed 10%

I am concerned that all the tax will be payable from the residue when all the residuary beneficiaries are charities

In all honesty, it is the first time I have been asked to draft a Will like this and I do not want to face any problem with the charities arguing that they are not liable for the tax. . Am I over thinking it?

Can any member help me with this? I know that charities can be very protective of their legacies and I want to ensure that I do not land up with a challenge to the Will. However, she is persistent that the cash legatees do not pay any tax but that it is paid from residue before the Charities get anything. I am also minded that she could land up in a nursing home which would see the charities’ inheritance further reduce. However, I cannot see an alternative way of dealing with it and follow her instructions. Should I just draft it as requested ? or should I suggest she increases the cash legacies and makes them subject to tax, which I believe could solve the problem.

Any help gratefully received
Joanne Orbell

I have spoken to her again and upping the legacies and making them subject to tax is something she is happy to consider. If someone has a better suggestion, then I would be most grateful to hear it

I don’t think the charities can complain if the IHT is payable by them out of residue. They certainly didn’t do so in a case I am dealing with. Of course grossing up of the legacies is necessary and you can, as no doubt you are aware, establish what the tax would be on the amount of the legacies by going onto the revenues website calculator. At the end of the day it is what the client wants and not what the charities might have preferred.

Patrick Moroney
Bwl solicitors

1 Like

Thank you Patrick

I have now used the Grossing up calculator with different scenarios for the client so that she4 can make an informed choice of how she wishes to proceed. For some reason I had it in my head that there would be an issue if the residue had to pay the tax in these circumstances.

I wouldn’t expect this to cause any difficulties. The legacies are merely grossed up to work out the tax. There isn’t really any scope for argument from the residuary beneficiaries - they are only entitled to what they are given under the Will, so if it’s clear that the legacies are free of tax then that will be sufficient.

Thank you Tobias

She has decided to make some lifetime gifts and lower the amount gifted by Will . I have explained the grossing up required should she fail to survive 7 years. Thank you to those who kindly responded to my question

Just to note that there is no grossing-up on lifetime gifts (ie PETs) to relatives of the donor if death occurs within 7 years of there date of the gift.

Malcolm Finney

Bonus information. Many thanks to you all.

Matter complete to my and her satisfaction.