TaxWorld: Inheritance Tax Planning

Inheritance Tax World

IHT Liability
Who Pays The Liability?
Mitigating IHT
Provision for Liability
Next Steps
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Inheritance Tax World

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In general terms, it is the person who receives the benefit of the gift upon which the liability is based. So let us take a couple of examples, by way of explanation:

  • David dies and leaves an estate which has a liability to IHT of £50,000.  His executors need to settle this IHT liability to allow them to obtain the Grant of Probate.  It is only when they have been granted Probate that they can distribute the net estate to the beneficiaries.  It is the Executors who settle the liability, as they have the capital to do so.
  • David makes a gift into a trust which results in a liability of £20,000.  As the trustees have the capital it is the trustees who have to settle the IHT liability from the trust assets.  However let us assume that David wishes to pay the liability that the trustees have, he can do so, but has to do it by effectively giving the trustees a larger gift (i.e. the gift and the money to pay the tax on the gift) however this additional gift also suffers IHT.  This is known as “grossing up” and is often done when the gift is an object as opposed to cash, as the trustees would not otherwise have the funds to settle the IHT liability.

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