IHT calculation

[Peter Pedant]

If a dead man has an estate of £1m and leaves half to battersea dogs home - a charity - and the other half to Miss Lulubella Whiplash,
what is the tax calculation ? Lulubell is a tax payer by the way.

are there any circumstances where Lulu has to pay the whole tax charge ?

thanks

[buildersmate]

Your previous postings suggest you are pretty knowledgeable on a lot of this stuff, so I'm not sure I can see what nuance you are driving at exploring here.
Firstly, it isn't the person receiving the gift that pays - it is the estate.
Secondly, charitable gifts are not liable to IHT.
So tax is liable on the net value of the estate.
That's £500k, less the nil rate band allowance of £325k.
Net estate on which tax is payable is £175k, tax at 40%, so £70k.
So estate after tax is £930k.
Is your issue, therefore, whether Lulu gets £430k and the charity gets £500k? - because that wouldn't be a 50/50 split?

[Barmaid]

Lulubell's half of residue will have to bear the whole of the IHT. This is because of the wording of s41b IHTA 1984 which states that notwithstanding the terms of any disposition where residue is split between exempt and non exempt beneficiaries any of the tax attributable to the non exempt share shall not be borne by the exempt share. (It is slightly more complicated if there are pecuniary legacies to non exempt individuals since then double grossing up is required).

The ONLY exception to this can be found in the case of Re Benham. In that case the testatrix divided her estate between two lists of beneficiaries (each list contained exempt and non exempt bens), with one list to receive something like 2.3 times the amount of the other list. The way the will was worded meant that the non exempt shares were "grossed up" so that all the beneficiaries in list A received the same (regardless of status) as did those in List B. A subsequent case (Re Ratcliffe) distinguished the facts of Benham and provided that in "normal" residuary clauses, the tax is calculated with normal application of s41b.

Thus in split residue cases, the non exempts will always receive less than the exempts.

[Peter Pedant]

Thank you boys and girls

there are very well educated hod carriers and pint pullers out there

I agreed with builders mate however the dead mans estates executors paid a thoou or two to have pint pullers advice. precisely that. The non exempt shall pay the tax bill of the exempt

I really am most grateful