Step 4 - Re Benham type grossing calculations: practice
Usually, working out the deceased’s intentions from the wording of the Will, or any other evidence, is a matter for the personal representatives (IHTM05012) and their advisors. But, given the doubt caused by the Re Benham decision you may have to consider the point. You should read the Will (IHTM12041) carefully to see if it includes an intention for all Inheritance tax to be paid before the residue (IHTM26003) is ascertained and divided. In the most common cases the Will directs, after distribution of any specific gifts, that the Executors/Trustees are, for example, ‘after payment thereout of my debts and funeral and testamentary expenses to stand possessed of the residue as to one-half part thereof for John … and Edward … in equal shares absolutely … and as to the remainder of my estate upon trust for the following charities in equal shares …’ These were the terms of Mrs Ratcliffe’s Will. You should calculate the residuary estate, deduct the share or proportion passing to an exempt body or person, and levy tax on the balance in the normal way (IHTM26071).
It is perfectly possible, though unusual, for you to come across a Will that has been deliberately drafted to achieve a Re Benham result. These would include, for example, a clause along these lines - ‘Mindful of the fact that some but not all of the equal shares given by this clause will be exempt from Inheritance Tax because of the identity of the beneficiary I declare that all the shares are to be of equal net value so that (if Inheritance Tax is payable in respect of my estate) the non-exempt shares are to be treated as shares of such grossed up amount as after tax will leave the recipients with a net amount the same as that received by the donees of the exempt shares.’ In this situation you should refer the file after all values have been settled, to the Actuarial Team to ‘gross up’ the chargeable part of the residue. Your note must show the value of any specific bequests (IHTM26011), and say whether they are free of tax (IHTM26123) or not, as well as identifying the net amount of the estate at that particular title. If you need to calculate the tax on the residue you should make this clear in your note.
Any cases of doubt or difficulty should be referred to Technical, after you have an explanation of the interpretation suggested by the taxpayer or agent. If we agree with the personal representatives, or their advisors, but any of the residuary beneficiaries object you should refer the case to Technical.