IHTM35220 | Provisions relating to Legitim: example of the consequences of an election under s.147(4)

Example

The total legitim (IHTM12221) fund is £80,000. There are 4 children, 1 over 18 and 3 under 18 at the testator’s death. An election is made for the application of IHTA84/S147 (4). For inheritance tax purposes, the legitim fund is calculated in the normal way, (IHTM12225) but without deducting the inheritance tax due on the fund itself.

Situation 1

If the child over 18 renounced their legitim share at the outset, the legitim fund must be restricted to £60,000 for the purposes of any later tax charge. You should charge tax on £60,000 as the top-slice of the testator’s estate. If only 2 of the younger children eventually claim their shares of legitim and the third renounces, the 2 will each pay one-third of the tax on the £60,000. The one-third of the tax attributable to the share of the remaining child who has renounced legitim will not be payable.

Situation 2

If the child over 18 claimed their share of legitim, the legitim fund would be £80,000 but tax would have been paid at the testator’s death on £20,000 of that fund. When the 2 younger children claim their shares you should charge tax on £60,000 as the top-slice and each will pay one-third of that tax. As before, the one-third share of the tax attributable to the share of the child who renounces legitim will not be payable. There will be no adjustment of the tax liability of the older child.