Grossing up and partly exempt estates
Grossing up and partly exempt estates

The following Private Client guidance note provides comprehensive and up to date legal information covering:

  • Grossing up and partly exempt estates
  • What is grossing up?
  • When is grossing up required?
  • Grossing up calculations
  • Legacies free of tax to non-exempt beneficiaries with residue passing to exempt beneficiaries
  • Residue is left to a mix of exempt and non-exempt beneficiaries
  • Double grossing
  • Partly exempt transfers where property is eligible for APR or BPR

The transfer of value on death is one transfer affecting the whole estate. Where there are no contrary provisions in the deceased’s Will, the general principle is that the inheritance tax (IHT) due on all UK free (not settled) property which vests in the personal representatives (PRs) is part of the testamentary and administration expenses and therefore it is all payable from the residue. Conversely, IHT is generally borne by the recipient beneficiary or other parties on:

  1. settled property

  2. jointly owned property passing by survivorship

  3. property subject to a gift with reservation of benefit

  4. foreign situs property, and

  5. property expressed in the Will as passing ‘subject to tax’

For further information on the allocation of the burden of IHT on death, including examples covering various scenarios, see Practice Note: Apportionment of IHT burden on death.

What is grossing up?

For a deceased estate where part of the residuary estate is exempt because it passes to a spouse or civil partner, charity, political party or other exempt body, special calculations are required to calculate the amount of IHT on any non-exempt tax-free legacies and non-exempt residue and its burden. This is known as grossing up.

Grossing up is sometimes required in relation to lifetime chargeable transfers where the donor also pays the IHT at the lifetime rate, so that the amount transferred needs