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You need to consider grossing up the chargeable amount when the tax is being paid by the trustees.  

That is because the beneficiary is receiving a sum that is net of tax and by grossing up you are calculating the full loss to the trust, which is subject to Inheritance Tax (IHT). �

Grossing does not apply to a proportionate charge 

• If the tax is not being paid by the trustees 

• If the tax is being paid by the trustees from non-relevant property remaining in the trust 

• If the trust comes to an end as a result of the distribution (or there is no longer any relevant property in the trust). 

Remember grossing up does not apply to the ten year anniversary charge 

»Ê¹ÚÌåÓýapp grossing process 

Once you know the rate of the IHT on a proportionate charge then the process is simple. 

For example, if the final rate (after applying the appropriate fraction and any rate relief) is 2% and the value appointed to the beneficiary is £100,000 and the trustees are paying the tax then the gross value is �

£100,000 ÷ (100% - 2%) = 100,000 ÷ 98% = £102,041 

So, the beneficiary received £100,000 net of IHT. »Ê¹ÚÌåÓýapp gross transfer is £102,041 (the full amount leaving the trust) and the IHT on that amount is £2,041.  

»Ê¹ÚÌåÓýapp grossing addition is always equal to the tax (i.e. £102,041 x 2% = £2,041 tax) 

What if the property subject to the charge is being charged at different rates? 

In such cases you apply the process above to each part. For example, if £50,000 of the amount above had only been in the trust for half of the time and is only being charged at 1% then you do two grossing calculations.  �

£50,000 ÷ (100% - 1%) = £50,000 ÷ 99% = £50,505 (IHT £505)

And for the rest 

£50,000 ÷ (100% - 2%) = £50,000 ÷ 98% = £51,020 (IHT £1,020) 

»Ê¹ÚÌåÓýapp total gross transfer is £101,525 and the IHT is £1,525 and the difference equals the net amount of £100,000 given to the beneficiary.