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HMRC internal manual

Inheritance Tax Manual

Lifetime transfers: the charge to tax: grossing: authority for grossing

Where, under IHTA84/S199 (1), the transferor is liable for the tax on a lifetime chargeable transfer, IHTA84/S5 (3) tells you to take into account the transferor’s liabilities when you determine the value of their estate before and afterwards. When you determine the value of the estate immediately after the transfer, IHTA84/S5(4) tells you to include the liability for Inheritance Tax amongst any others.

So the transferor’s estate is reduced not only by the transfer itself but also by the tax on that transfer. In order to calculate the tax, the value transferred has to be grossed up.

IHTA84/S162 (3)(b) tells you that there is no need to gross up if the tax is recovered from somebody other than the transferor. If that happens, the payment is just treated as if it discharged a liability of the transferor’s for which they had a right to reimbursement. Under IHTA84/S162 (1) you don’t take a liability of that kind into account when calculating the value of the transferor’s estate, unless the transferor cannot reasonably expect full reimbursement. If there is a reasonable expectation of partial reimbursement, the liability is taken into account only as regards the part that the reimbursement is not expected to cover.