Written by Private Client Associate Director, Liz Higgins
Calculating Inheritance Tax (IHT) is rarely straightforward, and it becomes even more complex when gifts in a Will are left “free of tax.” In 2017, HMRC released a grossing up calculator in PDF format, which required a step-by-step manual approach. While effective, it wasn’t the most user-friendly process.
That has now changed. On 5th March 2025, HMRC introduced an online Grossing Up calculator, replacing the old PDF version. This update makes the process quicker and reduces the risk of manual errors.
What does “free of tax” mean in a Will?
If a Will states that a gift is “free of tax,” the beneficiary receives the full amount without any deduction for IHT. Instead, the tax on that gift is covered by the estate. In certain cases, this increases the overall tax burden, as the total taxable value of the estate rises.
This is where grossing up comes in. It adjusts the value of the gift to reflect the extra tax the estate must pay. The new calculator simplifies this process, making it easier to work out the final figures.
Why does grossing up matter?
When an estate pays IHT on behalf of a beneficiary, the tax calculation is based on a higher effective gift amount. The more gifts left “free of tax,” the greater the impact on the estate’s tax liability.
This is particularly relevant for estates exceeding the £325,000 nil rate band, where IHT is charged at 40%. If the estate qualifies for additional allowances, such as the residence nil rate band or charitable donations that lower the tax rate to 36%, these must also be factored into the calculation.
How can the new calculator help?
The Grossing Up Calculator takes the complexity out of working out how much tax the estate needs to pay. By entering key details, executors can get a clearer picture of the estate’s tax position.
The new online version simplifies the calculation process:
- Users can input the necessary information directly into the system
- The calculator provides a clear breakdown of the grossed-up values
- Results can be printed and sent to HMRC alongside the IHT400 form
However, while the tool is useful, it doesn’t replace professional advice. There are many factors that can affect an estate’s tax liability, including lifetime gifts, unused allowances, and reliefs.
Speak to Gravita about your Inheritance Tax position
The new calculator is a step forward in making IHT calculations easier, but estate planning remains complex. The best way to ensure that your estate is structured tax-efficiently is to seek professional advice.
At Gravita, our specialists can help you understand how these rules apply to you and what steps you can take to manage your tax position. Get in touch with Private Client Associate Director, Liz Higgins to discuss your estate planning needs.
