Allocation of Exemptions and Reliefs

Question 1

When does allocation matter?

Answer 1

Where IHT is payable, and some estate passes to exempt beneficiaries and some to chargeable beneficiaries

Question 2

If there is a specific gift to exempt beneficiary and residue to chargeable beneficiary, what is taxable and from what?

Answer 2

Only the residue, IHT paid from residue

Question 3

If specific gift to exempt beneficiary and residue to both chargeable and exempt beneficiary, what is taxable and from what?

Answer 3

Chargeable residue split is taxed

Question 4

If there is a specific gift to chargeable beneficiary (subject to tax) and residue to exempt, who is taxed?

Answer 4

Gift is taxed; tax paid from legacy. Exempt residue left untouched

Question 5

If there is a specific gift to chargeable beneficiary (subject to tax) and residue to both, who and how is taxed?

Answer 5

IHT paid proportionally from child’s legacy, and chargeable portion of residue

Question 6

If specific gift to chargeable beneficiary (free of tax) and residue to exempt, who pays the tax?

Answer 6

Legacy paid gross and IHT paid from residue

Question 7

When is grossing up needed?

Answer 7

Specific gift free of tax to chargeable beneficiary, residue to exempt beneficiary