Tax burden on death: legacies bearing their own tax
Where the gift received by your deceased was reduced by the tax due on it, you must deduct that tax to arrive at the net value of the increase to your deceased’s estate.
Maurice died in January 2009 leaving an estate of £450,000. No business or agricultural relief was available. By his Will the whole estate passed to chargeable beneficiaries. The legacies include one of £4,000 to Lionel subject to him paying the tax on it. The tax on the whole estate is £55,200.
Lionel dies in July 2010. As Lionel had to bear the tax on the legacy, the tax has to be deducted to arrive at the net value received by him. The deduction is:
|(£4,000 ÷ £450,000)||×||£55,200||=||£491|
|So the net gift to Lionel is||£4,000|
|The quick succession relief calculation is:|
|(£3,509 ÷ £450,000)||×||£55,200||×||80%||=||£344|
Contrast this with the result in the example at IHTM22072 where the legacy received was of the same amount, but free of tax.