Subject to or free of Inheritance Tax

Testator has left a specific gift of property to niece but no reference to who should bear the tax. I understand that it will be the residue which pays the tax when the will is silent. If correct, what happens when there are insufficient funds in the residual estate to discharge the liability?

If the only gifts under the will are the property and residue then, once residue has been fully absorbed the shortfall is payable out of the property. The beneficiary entitled could either introduce funds to clear the shortfall, thus enabling the property to be assented to them, or agree to its being sold, and the executor account to them for the net proceeds of sale.

If there are also general (cash) legacies, then once residue has been fully absorbed, the shortfall will be payable out of these legacies on a pro-rata basis, so that they abate equally (percentage wise). If they are fully absorbed by the shortfall, then you are in a similar situation to the above.

If there are other specific legacies (e.g. chattels), then they will abate rateably with the gift of the property using the date of death value, but only once residue and any general legacies have abated in full…

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

For solvent estates, subject to will terms, the statutory order of application of assets is laid down in Pt II First Schedule AEA 1925 s34(3).

Malcolm Finney

Many thanks for your responses. They are appreciated.