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HMRC internal manual

Inheritance Tax Manual

Lifetime transfers: the charge to tax: grossing: when to gross-up

Grossing applies when the tax on the chargeable transfer is borne by the transferor. (IHTM14593)

You should gross up the value transferred if

  • the account or correspondence states that the transferor is to bear the tax
  • at the time of the transfer the transferor enters into a binding agreement to pay the tax
  • after the transfer, the transferor pays tax (even an instalment) direct to HMRC, or
  • the tax is paid from the transferor’s death estate (IHTM14593).

All these situations are caught by IHTA84/S227(1)(b). You should not allow instalments in cases where arrangements of this kind are revealed.