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Tax-free annuities which have been bequeathed in wills can result in a situation where the annuitant¹:

1. Ìý

   •ÌýÌýÌýÌý must repay some or all of any refunded tax to the trust, or

2. Ìý

   •ÌýÌýÌýÌý can recover tax suffered at higher rates from the trust

For a discussion of the different types of tax free annuities, see E1.960.

The gross amount of the annuity bequeathed by the testator is obtained by simply grossing up the stated annuity at the prevailing basic rate of income tax². Tax is withheld from the payment at the basic rate and paid over to HMRC³.

If the annuitant is entitled to a refund from HMRC then they must claim that refund and repay some or all of it to the trust. If only some of the withheld tax is refunded then the trust effectively bears the cost of the tax that is not refunded by HMRC.

This simple gross up does not always precisely achieve the