Step 4 - Re Benham type grossing calculations: legal background
The cases of Re Benham’s Will Trusts (1995) STC 210 and Re Ratcliffe (deceased) (1999) STC 262 were concerned with the meaning of a Will (IHTM12041) in which the residuary estate (IHTM26003) was divided between exempt and chargeable beneficiaries. As it happened the exempt beneficiaries were charities, but the principles will also apply where part of the residue goes to a spouse or civil partner (IHTM11032), or to any combination of exempt and chargeable beneficiaries. The question addressed in each case was whether the testatrix intended the residuary beneficiaries to receive specified proportions of the estate after all Inheritance Tax had been paid.
In Re Benham, the judge decided that the words used showed that intention. IHTA84/S41 (b) provides: ‘none of the tax attributable to the value of the property comprised in residue shall fall on any gift of a share of residue if or to the extent that the transfer is exempt with respect to the gift.’ To give effect to Jane Benham’s Will, and at the same time meet the requirements of IHTA84/S41 (b), the chargeable shares of residue were ‘grossed up’ to include the tax payable on them.
The Re Ratcliffe (deceased) case concerned the more usual form of Will drafting precedent. The finding was that Mrs Ratcliffe’s intentions were that by directing an equal division of residue after payment of her debts and funeral and testamentary expenses (which would include paying Inheritance Tax) she was simply directing that the disposable residue was to be divided equally.