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HMRC internal manual

Inheritance Tax Manual

Step 4 - grossing up: the specific gifts you should gross up

The only specific gifts to gross up (IHTM26003) are those

  • to chargeable beneficiaries (or, very rarely, gifts to exempt beneficiaries in excess of a value limit (IHTM26130)), and
  • which are free of tax (IHTM26003) - that is to say which do not bear their own tax

So you need to know which gifts bear their own tax and which do not.

IHTA84/S42 (2) provides that a gift bears its own tax if the tax attributable to it

  • falls on the person entitled to the property given, or
  • is payable out of the property given

IHTA84/S211 provides that Inheritance Tax payable on property vested in the deceased’s personal representatives (IHTM05012) (the free estate (IHTM26003)) that

  • is situated in the UK, and
  • was not immediately before death comprised in a settlement (IHTM16042)

is to be treated as a testamentary expense and payable out of the residue (IHTM12082) of the estate unless the deceased states a contrary intention in their will.

Gifts of residue bear their own tax. In order to tell whether or not other gifts bear their own tax you will need to consider carefully whether they are

  • specific gifts in the free estate (IHTM26124)
  • specific gifts out of settled property (IHTM26125), and
  • other property (IHTM26126) that forms part of the deceased’s death estate