Specifying gifts "free of all duties and taxes" in a will

Jonx999

Hi,

We're looking to update our wills and my wife is convinced that a will can be worded such that specific items - such as family jewellery, heirlooms, and sums of money - can be left as gifts "free of all duties and taxes" (or similar wording) to avoid IHT.  This seems unlikely to me, otherwise everyone would be doing it to minimise IHT, but I thought I'd better check. 

Does anyone know if such tax-free gifts are permitted in a will and, if so, what the rules are? 

Thanks

Nearlyold

Sorry but IHT can't be avoided by simply stating in a will that bequests are free of all duties and taxes.

What the phrase means is where IHT/ other taxes are due on an estate, bequests written with that clause will be passed over to the beneficiary without any proportionate deduction for the IHT that was paid on the total value of the estate (Provided that's mathematically possible) The estate still has to pay the full amount due in IHT based on the total value of the estate.

theoretica

There is a scheme of postponing tax - but only for items of National Interest

https://www.gov.uk/guidance/tax-relief-for-national-heritage-assets

TBagpuss

YEs,. as nearlyold says, it doesn't stop tax being payable, it just means that the tax is paid out of the residuary estate.

IT can be helpful to ensure that specific items can actually go the person you want to have them, and to ensure that if (say) you want to leave a financial legacy to a friend or charity and the bulk of your estate elsewhere that there is no dispute over how the tax is paid, but you can't do it for the whole estate and avoid tax 

It just means that if (for example) you leave your goddaughter £20,000 free of tax and the rest of your estate to your son, that your goddaughter gets £20,000 and your son gets the rest of the estate after and IHT is paid

Jonx999

Nearlyold said:

Sorry but IHT can't be avoided by simply stating in a will that bequests are free of all duties and taxes.

What the phrase means is where IHT/ other taxes are due on an estate, bequests written with that clause will be passed over to the beneficiary without any proportionate deduction for the IHT that was paid on the total value of the estate (Provided that's mathematically possible) The estate still has to pay the full amount due in IHT based on the total value of the estate.

That makes sense, thanks.  So if, say, the estate included a valuable item of jewellery that happened to be a family heirloom then it would still need to be valued and that figure included in the IHT calculation, regardless of whether or not it is specifically gifted to someone in the will? 

In fact, is there any benefit at all to including the "free of duties and taxes" phrasing against bequests in a will?

Keep_pedalling

Jonx999 said:

Nearlyold said:

Sorry but IHT can't be avoided by simply stating in a will that bequests are free of all duties and taxes.

What the phrase means is where IHT/ other taxes are due on an estate, bequests written with that clause will be passed over to the beneficiary without any proportionate deduction for the IHT that was paid on the total value of the estate (Provided that's mathematically possible) The estate still has to pay the full amount due in IHT based on the total value of the estate.

That makes sense, thanks.  So if, say, the estate included a valuable item of jewellery that happened to be a family heirloom then it would still need to be valued and that figure included in the IHT calculation, regardless of whether or not it is specifically gifted to someone in the will?  

Yes.

In fact, is there any benefit at all to including the "free of duties and taxes" phrasing against bequests in a will?

It is used to avoid minor beneficiaries having their bequests reduced by a proportional amount of IHT being applied to it rather than from the residuary estate. It also makes it clear to the executors how the estate is to be distributed once the tax has been paid.

If your joint net worth is likely to be subject to IHT then you need to look outside of the will to mitigate it through things like gifting.