IHTM45033 | Reduced rate for gifts to charity: abatement: insufficient assets to pay legacies under the Will

Where there are insufficient assets in the estate to pay all the legacies bequeathed by Will, the legacies must abate in accordance with the general law (IHTM12086). Where this results in the value of a charitable legacy being reduced in value, you must use this reduced value for the charitable legacy for the purposes of the 10% test.

Example

Robert died on 14 June 2012 leaving an estate valued at £500,000 after deduction of liabilities. He left a specific bequest of an antique vase worth £120,000 to his daughter and legacies of £150,000 to each of his three sons. He left £20,000 to English Heritage and the residue to be divided between his four children equally.

At first sight, the estate is likely to qualify for the reduced rate; the baseline is £175,000 and £20,000 exceeds the 10% test.

However, Robert has left legacies totalling £590,000 and his net estate is only worth £500,000. Under the rules of abatement, his daughter receives her legacy of the vase, leaving legacies totalling £470,000 to be paid from an estate worth £380,000. As the legacies are all in the same class of legacy, they will abate rateably so the legacies to the sons will reduce to

£150,000 × (£380,000 ÷ £470,000) = £121,277

and the legacy to the charity will reduce to

£20,000 × (£380,000 ÷ £470,000) = £16,170

The abated value of the charitable legacy does not meet the 10% test, so the estate will not qualify for the reduced rate. In cases where abatement applies you should look carefully at the terms of any Instrument of Variation (IHTM35011) to ensure that abatement does not continue to apply, even after the Will has been varied.