Who bears tax payable on specific legacies when residue passing to exempt and non-exempt beneficiaries

Hi

We have an estate where there are around £10,000 of specific and pecuniary legacies, then 1/10 of the residue of the estate passes to charities and the rest passes to non-exempt beneficiaries. The legatees are also all non exempt beneficiaries. The residue is to be distributed in accordance with Re Ratcliffe.

We have been advised by one of the charities that the tax attributable to the £10,000 of gifts should be borne by the charities as well as the non-exempt beneficiaries – ie treated as a testamentary expense as per s211 IHTA 1984 before the determination of the residue.

Looking at s41 IHTA 1984 I think that position could be right – as 41(b) only makes reference to tax payable on residue, but my reading of the commentary has left me confused and unclear.

Is anyone able to help clarify this for me?

Many thanks

Helen Dawson
Berwins

The IHT on the prior legacies is a general administration expense, payable out of residue before division.

The non-exempt prior legacies will need to grossed up to identify the tax attributable to them.

As identified, under Radcliffe, the IHT on residue is payable only by the non-exempt beneficiaries in respect of their individual shares of residue.

Paul Saunders

Yes I have had a similar situation. Any tax payable on the pecuniary legacies will have to be borne by the residuary beneficiaries even though some may be charities. They will not pay any tax however on the residuary gift.

sharon edelstyn
Phoenix Legal Group

Thank you for your help Paul and Sharon – some of the wording used in PLC’s guidance threw me, so the clarification is much appreciated.

Helen Dawson
Berwins

I agree with Paul and Sharon, but would add that in the absence of lifetime
gifts and/or other aggregable transfers [none mentioned in the original
post] no tax would be due on the legacies anyway as they will be within the
NRB; UNLESS [unusually] the will specifically makes these legacies bear
their own tax AND the grossed-up total of these plus the chargeable share
of residue and any other aggregable transfer exceeds the available NRB.

I have not checked recently, but the HMRC website used to offer helpful
online worksheets which would quickly indicate if any complication arises.

Kevin Mullen