Trusts and Inheritance Tax

Incidence of tax on residuary gifts

Produced by Tolley
  • 19 Oct 2021 23:14

The following Trusts and Inheritance Tax guidance note Produced 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
  • Grossing up
  • Applying exemption to exempt residuary beneficiaries
  • Re Benham’s Will Trusts
  • Property qualifying for APR or BPR in residue
  • No specific gifts
  • Specific gifts and APR / BPR

Incidence of tax on residuary gifts

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 liabilities, expenses and specific gifts have been paid. 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.

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.

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.

So the general rule is that tax is a testamentary expense, which is paid out of residue. The tax on specific gifts is borne by residue unless:

  1. the gifts are required by the terms of the Will to bear

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