Glossary · UK
What is Grossing Up (Inheritance Tax)?
A calculation that works out the pre-tax value of a tax-free legacy when the estate, rather than the beneficiary, bears the Inheritance Tax on it.
Full Definition
Grossing up is an Inheritance Tax calculation used when a will leaves a gift free of tax but the residue of the estate is taxable. Because the tax-free legacy is paid in full to the beneficiary, the Inheritance Tax that would otherwise have reduced it must be met from the rest of the estate. To work out the true cost, the legacy is 'grossed up' to the larger amount that, after deducting tax at the death rate, leaves the intended net sum. The standard death rate is 40% on the value of an estate above the available nil-rate band (the Nil-Rate Band is GBP 325,000, plus a Residence Nil-Rate Band of up to GBP 175,000), with a reduced 36% rate where 10% or more of the net estate passes to charity. Grossing up matters because it changes how much tax the estate actually pays and how much is left for residuary beneficiaries. The arithmetic is intricate, so professional advice or HMRC guidance is usually needed.