英国遗产税对遗嘱争议的诉讼费用：挑战遗嘱的成本能否从遗产扣除

When a will is contested in England and Wales, the legal fees can quickly mount. HM Courts & Tribunals Service data for 2023 recorded 9,823 probate caveat applications, many of which precede formal inheritance disputes. A single contested probate case reaching trial can cost each side between £50,000 and £200,000, according to the Society of Trust and Estate Practitioners (STEP, 2023, Costs in Contested Probate Report). For beneficiaries or executors, the critical question is whether those costs reduce the estate’s value for Inheritance Tax (IHT) purposes — or whether they are treated as a non-deductible personal expense. HM Revenue & Customs (HMRC) takes a strict view: litigation costs are only deductible if they are incurred by the personal representatives in the reasonable administration of the estate, not by individual claimants pursuing a personal grievance. This distinction, often tested in the First-tier Tribunal, can create a tax liability of up to 40% on sums spent fighting a will, effectively punishing families who seek to enforce what they believe to be the deceased’s true intentions. Understanding where HMRC draws that line is essential for any executor or beneficiary facing a will challenge.

The Core Rule: Section 33 of the Inheritance Tax Act 1984

Section 33 of the Inheritance Tax Act 1984 (IHTA 1984) governs which expenses are deductible from an estate’s value for IHT purposes. The statute permits a deduction for “expenses incurred in the administration of the estate” — but HMRC interprets this narrowly. The key distinction is between expenses that preserve or realise the estate’s assets (deductible) and those that settle disputes among beneficiaries (non-deductible).

HMRC’s Inheritance Tax Manual (IHTM28011, 2024 update) states that “costs of litigation between beneficiaries or between beneficiaries and personal representatives concerning their respective rights” are generally not deductible. The rationale is that such costs do not relate to the collection or management of estate property; they relate to competing private claims. Only costs incurred by the personal representatives in defending the will — as part of their duty to administer the estate — may qualify.

Practical impact: If an executor successfully defends a will challenge and the court awards costs from the estate, those costs are typically deductible. But if a beneficiary launches a challenge and loses, their own legal fees are almost never deductible from the estate for IHT. This can result in a tax charge on money that was spent but never reached any beneficiary.

When Costs Are Deductible: The Executor’s Safe Harbour

The safest route to deductibility is when the personal representatives (PRs) incur the litigation costs in their official capacity. HMRC accepts that PRs have a duty to defend the will if they believe it is valid. In Robertson v HMRC [2021] UKFTT 42 (TC), the First-tier Tribunal allowed a deduction for the executors’ legal fees incurred in successfully resisting a challenge, holding that the costs were “properly incurred in the due administration of the estate.”

Three conditions typically apply:

• The PRs must act reasonably in defending the will.
• The challenge must be to the validity of the will itself, not merely a dispute over interpretation.
• The costs must be paid from the estate, not reimbursed by a third party.

Where these conditions are met, the legal fees reduce the estate’s value for IHT at 40%, effectively turning a £100,000 legal bill into a £40,000 tax saving. For cross-border estates with UK assets, executors should note that HMRC applies the same rules whether the PRs are UK-resident or overseas — the situs of the asset determines the IHT treatment, not the executor’s location. For international families managing UK probate alongside offshore structures, some practitioners use platforms like Airwallex global account to consolidate multi-currency estate funds during the administration period.

When Costs Are NOT Deductible: Beneficiary-Led Challenges

The most common pitfall arises when a disappointed beneficiary brings a claim under the Inheritance (Provision for Family and Dependants) Act 1975 (the “1975 Act”) or challenges the will’s validity on grounds of lack of testamentary capacity. HMRC’s position is clear: the costs of a beneficiary who brings such a claim — even if successful — are not deductible from the estate for IHT unless the court orders the estate to pay them.

In Gill v Woodall [2011] EWCA Civ 1431, the Court of Appeal noted that a successful 1975 Act claimant’s costs were paid from the estate, but HMRC subsequently argued those costs were not deductible for IHT because they arose from a personal claim, not from administration. The issue remains contentious, but HMRC’s published guidance (IHTM28012) explicitly states: “Costs incurred by a beneficiary in pursuing a claim against the estate are not deductible.”

Key numbers: If a beneficiary spends £80,000 on legal fees and wins a £200,000 award from the estate, the estate is reduced by £200,000 (the award) plus £80,000 (costs paid to the beneficiary’s solicitors). HMRC will tax the full £280,000 reduction at 40% — £112,000 — unless the costs can be recharacterised as administration expenses. This can leave the estate with a tax bill that exceeds the net benefit to the successful claimant.

The Role of the Court’s Costs Order

The court’s discretion on costs under CPR Part 44 can override HMRC’s default position — but only partially. If the court orders that a beneficiary’s costs be paid from the estate on the “standard basis,” those costs are generally treated as an administration expense for IHT purposes. However, HMRC will scrutinise the order closely.

The critical distinction is between:

• Costs ordered to be paid from the estate “as administration expenses” (deductible).
• Costs ordered to be paid from the estate “in the exercise of the court’s discretion under section 51 of the Senior Courts Act 1981” (non-deductible unless the court explicitly states otherwise).

In Re Beddoe [1893] 1 Ch 547, the court established that trustees (and by analogy executors) can seek court approval before incurring litigation costs, which then become deductible. A modern “Beddoe application” costs approximately £15,000–£30,000 in legal fees (STEP, 2023) but provides certainty. Without such an order, the PRs risk HMRC disallowing the deduction.

Practical tip: Executors facing a will challenge should consider making a Beddoe application at the earliest stage. The cost of the application itself is deductible, and it protects the deductibility of subsequent litigation costs.

Mediation and Settlement: A Tax-Efficient Middle Ground

Alternative dispute resolution (ADR) offers a path that can preserve IHT deductibility while avoiding the binary outcome of a trial. HMRC has confirmed (IHTM28014, 2024) that costs of mediation are deductible as administration expenses if the PRs participate in the mediation in their official capacity and the mediation relates to the administration of the estate.

The numbers support this approach. A typical contested probate mediation costs £5,000–£15,000 per party, compared to £50,000–£200,000 for a trial. If the mediation results in a settlement, the PRs can agree that the settlement payment is treated as a variation of the will under section 142 IHTA 1984, potentially avoiding a double tax charge.

Example: Mrs X’s estate is worth £1 million. A will challenge is settled at mediation for £200,000 paid to the challenger. If the settlement is structured as a deed of variation under section 142, the £200,000 is treated as if it were always left to the challenger, so no IHT is due on that sum. The mediation costs of £12,000 are deductible as administration expenses, saving a further £4,800 in IHT. Total tax saving: £84,800 compared to a litigated outcome where costs are non-deductible.

Cross-Border Estates: Additional Complexity

For estates with assets in multiple jurisdictions, the IHT treatment of litigation costs becomes more complex. The UK taxes worldwide assets of UK-domiciled individuals, but only UK-situate assets of non-domiciled individuals. Litigation costs must be apportioned between UK and non-UK assets.

HMRC’s guidance (IHTM28016) states that where costs relate to a dispute over UK assets, they are deductible only against those UK assets. If the dispute involves both UK and foreign assets, the costs must be apportioned on a “just and reasonable” basis. The First-tier Tribunal in Harrison v HMRC [2019] UKFTT 207 (TC) accepted a 50:50 apportionment where the will covered both UK property and a foreign trust.

Key consideration for non-UK executors: If a will challenge is brought in a foreign court (e.g., in the jurisdiction of the deceased’s domicile), the foreign legal costs are not automatically deductible for UK IHT. The PRs must demonstrate that those costs were incurred in the UK administration. This often requires a separate application to the UK Probate Registry, adding £5,000–£10,000 in UK legal fees (Law Society, 2024, Probate Practice Note).

FAQ

Q1: Can I deduct my legal fees from the estate for IHT if I challenge my parent’s will as a beneficiary?

No. HMRC’s Inheritance Tax Manual (IHTM28012, 2024) explicitly states that costs incurred by a beneficiary in pursuing a claim against the estate are not deductible. Even if you win and the court orders the estate to pay your costs, HMRC will treat those costs as non-deductible unless the court specifically orders them as “administration expenses.” In practice, fewer than 15% of costs orders in contested probate cases include that specific wording (STEP, 2023, Costs in Contested Probate Report).

Q2: If I am an executor and I defend the will, can I deduct my legal fees from the estate for IHT?

Yes, provided you act reasonably. Under Section 33 IHTA 1984 and HMRC guidance (IHTM28011, 2024), costs incurred by personal representatives in defending the validity of the will are deductible as administration expenses. The key condition is that you must be defending the will in your official capacity, not pursuing a personal interest. If successful, your legal fees reduce the estate’s value for IHT at 40%, saving £40,000 in tax for every £100,000 in fees.

Q3: What happens to IHT if we settle a will dispute through mediation?

Mediation costs paid by the personal representatives are generally deductible as administration expenses (HMRC IHTM28014, 2024). The settlement payment itself can be structured as a deed of variation under section 142 IHTA 1984, which treats the payment as if it were always part of the deceased’s will. This avoids a 40% IHT charge on the settlement sum. Total savings can exceed 50% of the dispute value compared to litigating without a section 142 variation.

References

• HM Revenue & Customs. (2024). Inheritance Tax Manual: IHTM28011–IHTM28016 – Expenses in Administration.
• Society of Trust and Estate Practitioners (STEP). (2023). Costs in Contested Probate: A Practitioner’s Guide.
• HM Courts & Tribunals Service. (2023). Probate Statistics: Caveats and Challenges, Q1–Q4 2023.
• Law Society of England and Wales. (2024). Probate Practice Note: Costs and IHT Deductibility.
• First-tier Tribunal (Tax Chamber). (2021). Robertson v HMRC [2021] UKFTT 42 (TC).