Incidence of tax on residuary gifts

By Tolley
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The following Trusts and Inheritance Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Incidence of tax on residuary gifts
  • What is a residuary gift?
  • Tax is a testamentary expense
  • Applying exemption to exempt residuary beneficiaries
  • Property qualifying for APR or BPR in residue

What is a residuary gift?

In the context of a disposition by Will, a residuary gift is a gift of a share of what is left of the free estate after specific gifts have been made. See the Incidence of tax on specific gifts guidance note. If there are no specific gifts, the whole estate is comprised of one or more residuary gifts. In the context of intestacy, where the deceased was survived by a spouse or civil partner, the residue is the balance of the estate after deducting the chattels and statutory legacy. See the Intestacy guidance note.

The features described in this guidance note apply to a gift of residue of the free estate. They do not generally arise in other components of the death estate, such as joint property or gifts with reservation. The transfer of settled property in which the deceased had a qualifying interest in possession could be divided into specific gifts and residue and similar considerations apply. However, residuary gifts of settled property do not normally bear the burden of tax on the specific gift element.

IHTM26125

This guidance note explains when and how inheritance tax is attributed to residuary gifts.

Tax is a testamentary expense

The persons liable to pay inheritance tax on a transfer of value on death are those in whom the property vests. Property in the free estate vests in the personal representatives. Property in a settlement vests in the trustees of the settlement.

IHTA 1984, s 200

Where the property vests in the PRs and the property is in the UK, the tax is treated as a general testamentary expense of the estate subject to any contrary intention shown by the deceased in his Will.

IHTA 1984, s 211

So the general rule is that tax is a testamentary expense, which

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