Specific gifts – who pays the costs?

A specific gift is a gift of a particular asset or assets in the Testator's estate and is defined in S.42 of the Inheritance Tax Act 1984 as a "gift other than a gift of residue or of a share in residue". Specific gifts can include, amongst other things, chattels, property, and jewellery. This article examines who is responsible for paying the costs associated with the maintenance, insurance, and tax due on such gifts between the date of death and the date that they are transferred to the beneficiary. It also explores who is responsible for paying the cost of transferring such items. 

Terms of the Will

The Will may provide directions on whether the costs should be paid by the receiving beneficiary or be treated as a testamentary expense payable from the residuary estate. Therefore, the first step should always be to consider the terms of the Will to determine whether such directions are given. If the Will is silent on the point, it will be necessary to apply common law principles. Different rules will apply depending on the type of asset being gifted and the type of cost being incurred. These are considered below:

The cost of transferring personal chattels including the cost of packaging, insurance, and postage costs, are payable by the beneficiary and not by the residuary estate.

The rules regarding the cost of transferring freehold and leasehold land and shares differ, as any costs associated with the transfer of such gifts are payable from the residuary estate as a testamentary expense. However, any costs that might arise once the transfer is complete are payable by the receiving beneficiary and not the estate. In the case of Re: Grosvenor, Grosvenor v Grosvenor it was determined that the cost of completing the transfer form required to vest shares in a beneficiary after the shares had been assented, was payable by the beneficiary and not the estate.

The cost of maintaining and preserving items including property from the date of death to the date that such items are transferred to the beneficiary, are payable by the beneficiary. This includes costs such as insurance, utility bills, council tax, and storage costs. The beneficiary would however be entitled to any rents or profits from any property from the date of death (Re: Rooke, Jeans v Gatehouse).

Mortgage on a Property

If a property that has been specifically gifted is subject to a Charge, s.35 of the Administration of Estates Act 1925 provides that unless the Testator has shown a contrary intention, the beneficiary will receive the property subject to the Charge. A general direction in the Will to pay debts from the residuary estate is not sufficient to show a contrary intention, and if there are no specific directions in the Will as to who should pay the Charge, a review of the Will and the corresponding Will file should be carried out to try to establish the Testator's intentions.

Inheritance Tax

The general rule is that a specific gift in a Will does not bear its own tax and any inheritance tax attributable to the gift is payable from the residuary estate as a testamentary expense (S.211 Inheritance Tax Act 1984). The exceptions to this rule are where there is a contrary direction in the Will that the gift should bear its own tax or if the specific gift is a gift of property situated outside of the UK. It is generally not advisable to make specific gifts subject to tax as the beneficiary will either have to pay the tax from their own money or, if they cannot afford to do this, the items will have to be sold to pay the tax due. This could defeat the intention of the gift or mean that items of sentimental value are lost.

Capital Gains Tax

Where an asset is specifically gifted to a beneficiary, that beneficiary is treated as acquiring the asset at the date of the deceased's death and at its market value on the date of death. This means that a chargeable gain will not arise when that asset is legally transferred to the beneficiary, even if the asset has increased in value since the date of death.

If you'd like to know more or require advice on how to deal with specific gifts, please contact a member of the Charity Probate Team.

Key contact