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Specific legacy subject to IHT

Scenario: A specific legacy of an asset is subject to the legatee paying any IHT due on the asset.

E.g. An estate has an overall IHT liability of £150,000. The estate contains a house valued at £300,000 and this is to pass as a specific legacy but IHT of £80,000 is due from the legatee prior to completing the transfer of the asset. There are no IHT exempt residuary beneficiaries so any IHT is recorded as administration expense(s).

How to show:

  • Record the asset in the normal way.
  • Show the asset as being transferred to the legatee. In the transfer description field add "subject to IHT of £80,000".
  • The full IHT liability of £150,000 is recorded as an administration expense.
  • The share of IHT recovered from the legatee is recorded as a NEGATIVE administration expense (I.E. -£80,000 making it show as a CREDIT in the expenses list/reports). The date of receipt of the funds and the target cash tracking account are recorded (e.g. client account).
  • As and when, the full IHT liability of £150,000 is shown as paid.

Notes:

  • A cash tracking account (e.g. named "IHT transactions") dedicated to monitoring the flow of postings related to IHT payments could be created in more complex cases where you wish to ring-fence these transactions.
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