Unless the will says otherwise, inheritance tax on UK assets that pass through the executors’ hands is paid out of the residue, so specific legacies are received free of tax and the residuary beneficiaries bear the cost. Where the residue goes wholly or partly to an exempt beneficiary such as a spouse or charity, a tax free legacy to anyone else has to be grossed up, which increases the tax and reduces what the exempt beneficiary receives.

What is the default rule on who bears the tax?

Section 211(1) of the Inheritance Tax Act 1984 (IHTA 1984) treats tax on property in the United Kingdom that vests in the personal representatives, and was not settled property immediately before the death, as part of the general testamentary and administration expenses of the estate. Those expenses come out of residue. Section 211(2) makes this subject to any contrary intention shown in the will.

HMRC’s manual at IHTM26124 draws the practical conclusion: because of section 211, specific gifts under a will or codicil normally do not bear their own tax. A specific gift means anything other than residue or a share of residue (section 42(1)), so it includes cash legacies, gifts of a house or shares, the forgiveness of a debt, and, as IHTM26011 notes, a direction that the tax on a lifetime gift is to be paid out of residue.

Which gifts bear their own tax?

Section 42(2) says a gift bears its own tax if the tax attributable to it falls on the person who becomes entitled to the property, or is payable out of property applicable for the same purposes. IHTM26124 lists the exceptions to the free of tax default for gifts out of the free estate:

  • an express direction in the will that the gift bears its own tax, for example a gift of unlisted shares to a son on condition that he pays the tax on them;
  • legacies made by a variation within section 142 where the beneficiary agrees that the gift bears its own tax;
  • gifts of property situated outside the UK, which bear their own tax unless the will shows a contrary intention; and
  • legal rights claimed in Scotland, which section 42(4) treats as a specific gift bearing its own tax.

Some property never passes through the will at all. IHTM26126 says joint property passing by survivorship, nominated property, property taxed as a gift with reservation, and any other property that does not vest in the personal representatives all bear their own tax; see joint tenants and tenants in common. Where executors pay tax that is not an estate expense on property vested in someone else, and cannot deduct it from anything that person is due from the estate, section 211(3), as substituted by the Finance Act 2026, requires that person to repay them.

Why does a tax free legacy need grossing up?

Grossing up is needed only where part of the estate is exempt. If the whole residue is taxable, the tax simply comes out of the taxable residue and HMRC at IHTM26030 says the chargeable estate can normally be found by deducting the exempt specific gifts. The difficulty arises when a tax free legacy goes to a chargeable beneficiary and the residue goes to an exempt one.

HMRC’s explanation at IHTM26122 is that, if the legacy is free of tax, the legatee receives the full amount and the tax comes out of the exempt residue, reducing the spouse’s or charity’s share. Taxing only the nominal legacy would understate the benefit passing to the chargeable beneficiary. Section 38(1) and (3) therefore attribute to the legacy its value plus the tax that would be chargeable on it: the legacy is grossed up to the figure that, after tax at 40%, leaves the actual legacy. Above the available nil rate band, that means multiplying by 100/60, or five thirds.

IHTM26142 gives the simple formula where the residue is wholly exempt and all chargeable specific gifts are free of tax: the nil rate band plus the excess of those gifts over the band multiplied by 100/60. Where there are chargeable lifetime transfers in the previous seven years, IHTM26143 substitutes the unused balance of the band.

How much difference does the wording make?

Illustration only. Sam dies leaving an estate of £800,000, with no lifetime gifts and no relief or exemption other than the spouse exemption. His will leaves £425,000 to his daughter and the residue to his wife. The nil rate band is £325,000.

Legacy wording Chargeable value Tax Daughter receives Wife receives
Bears its own tax £425,000 £40,000 £385,000 £375,000
Free of tax (the default) £491,667 £66,667 £425,000 £308,333

In the second line, the £100,000 above the band is grossed up to £166,667 and added back to the £325,000 band. Tax at 40% on £166,667 is £66,667, and £491,667 less £66,667 is exactly the £425,000 legacy. The tax bill rises by £26,667 and all of it is borne by the wife’s share, even though her share is exempt.

What if the residue is only partly exempt?

Where a tax free legacy sits alongside a residue that is partly chargeable, or alongside other legacies that bear their own tax, the simple formula does not work, because the rate depends on the size of the whole chargeable estate. Section 38(4) and (5) then gross up at an assumed rate. HMRC applies this as a four stage calculation (IHTM26131 and IHTM26152): gross up the tax free gifts on their own, use that figure to make an initial estimate of the chargeable estate, gross the tax free gifts up again at the rate that estimate produces, and then fix the final chargeable estate.

Business and agricultural relief add a further step. IHTM26101 explains that where reliefs reduce the estate, specific gifts are first reduced under the interaction rules in section 39A before any grossing, otherwise a legacy to a spouse could absorb value that the relief was meant to protect.

What did Re Benham decide about dividing the residue?

A different question arises when the residue itself is divided between exempt and chargeable beneficiaries. Section 41(b) says none of the tax attributable to residue can fall on an exempt share of residue, whatever the will says. HMRC summarises the two leading cases at IHTM26171. In Re Benham’s Will Trusts (1995) the will was read as intending the residuary beneficiaries to receive equal amounts after tax, so the chargeable shares were grossed up. In Re Ratcliffe (1999) a standard direction to divide residue equally after paying debts and testamentary expenses meant the disposable residue was split equally, and the chargeable share then bore its own tax.

IHTM26172 says HMRC treats the usual Ratcliffe form of wording in the normal way and expects a Benham result only where a will has been deliberately drafted to give equal net shares. The difference can be large where a charity shares the residue, and it interacts with the 36% reduced rate.

Who decides how the tax is shared out?

Once the tax is calculated, IHTM26201 says allocating it between beneficiaries is a matter of administration for the personal representatives, and HMRC will not normally offer a view. IHTM26202 and IHTM26203 summarise the effect of section 41, which overrides the will:

  • tax on a chargeable specific gift that bears its own tax is deducted from that gift;
  • exempt specific gifts, and chargeable specific gifts that are free of tax, are paid in full;
  • tax on the tax free specific gifts comes out of the whole residue, even an exempt one;
  • the balance of residue is divided under the will, and tax on the chargeable part of residue is borne by that part only.

Executors who get this wrong can be left personally out of pocket; see executors’ liability for inheritance tax.

What mistakes come up most often?

  • Assuming a legacy bears its own tax because the will is silent. Silence means free of tax for UK assets.
  • Forgetting that a gift of foreign property bears its own tax unless the will says otherwise.
  • Taxing a tax free legacy at its face value where the residue is exempt, which understates the tax.
  • Leaving a large tax free legacy to children and the residue to a spouse without modelling how far grossing reduces the spouse’s share.
  • Overlooking that a direction to pay tax on lifetime gifts out of residue is itself a legacy, which may need grossing; see who pays IHT on gifts when the donor dies.
  • Mixing up death estate grossing at 100/60 with lifetime grossing at 100/80, covered in grossing up lifetime gifts.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.