Inheritance Tax World
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IHT - WHO PAYS THE LIABILITY?
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
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