NRB legacy and grossing up gifts

I am dealing with an estate where there are some pecuniary & specific legacies to some non-exempt beneficiaries free of tax & a NRB legacy to the deceased’s daughter which is worded as follows:

Such sum as is equal to the amount which is the upper limit at the date of my death of the first nil-rate portion value referred to in section 7(3) of the Inheritance Tax Act 184 in accordance with section 8 of he Inheritance Tax Act 1984 but reduced by the aggregate of the values transferred by previous chargeable transfers made by me in the period of seven years ending with the date of my death and in this clause the terms “values transferred” and “chargeable transfers” have the same meaning as in the Inheritance Tax Act 1984

The residue is left to the surviving spouse.

So does the daughter receive £325,000 less the amount of the gifts in the Will or do I have to gross up the gifts?

Sally-Ann Joseph
Rose & Rose

Although it might not be what the testator had in mind, on the basis of the wording you have set out (and in the absence of evidence to the contrary) I would say the daughter receives the sum of £325,000, and the other gifts are grossed up. The situation is not dissimilar to the situation in RSPCA v Sharp.

Paul Davies

On the basis that the value of the NRB legacy is to be reduced only by gifts made during the 7 year period ending with the testator’s death, the value of taxable legacies made on death (i.e. those included within the will) are not to be taken into account.

I agree, therefore, that the NRB gift will be of the full £325,000.

Whilst I note Paul Davies compares the situation to RSPCA v. Sharp, I feel this is misleading as, on appeal, their Lordships reversed the first instance decision, holding that the NRB legacy in that case was reduced by the other taxable gifts under the will.

Paul Saunders