Proportionate charges: grossing
When to gross-up
Grossing up applies where the trustees pay the tax from the funds still held in the trust.
The beneficiary is effectively receiving two benefits; the appointed/distributed sum and freedom from paying inheritance tax on it.
Grossing up ensures that the appointed property is taxed on the ‘loss to the settlement’ basis.
The grossing addition must always be equal to the tax chargeable on the net chargeable value.
Grossing does not apply
- if the tax is being paid out of the assets ceasing to be held on the discretionary trust,
- at a ten year anniversary, or
- on the termination of a trust.
If you are assessing on Compass, you can prepare a calculation to find out the tax to pay and the appropriate relief on the transferred value, but cancel it without raising an assessment.
- Go to the grossing template and find the grossed-up value for each asset. (You should have a shortcut to the template in your “In House Applications” desktop folder.)
- In the Compass record, you can now make an addition to the value of the property coming out. Ensure that separate assets are matched to the appropriate start date so that reliefs can be applied properly.
- You can then re-raise your assessment calculations.
Add a comment in the assessment notes to explain the grossing addition.