Deed of variation

[dedalus]

Hi all,

I would like some clarification on the Deed of Variation.

If a person domiciled in the UK inherits a large sum of money from a foreign person who has never been to the UK and wishes to
donate this estate straight away to his children would a deed of variation prevent IHT being payble should the original beneficiary die within
seven years of receiving (and donating) the foreign inheritance?

many thanks

[pqtaxation]

.... would a deed of variation prevent IHT being payble should the original beneficiary die within seven years of receiving (and donating) the foreign inheritance?

No. The foreign will directs the bequest to the UK domiciliary who, in turn, makes gift(s) (as PETs) to his children.

A DoV alters the disposition of estate directed by a deceased's will. It is that disposition that has to be changed, if possible and in accordance with the applicable laws of the country of residence of the foreign domiciliary, so that the disposition is directly to the children in order to achieve the result you intend.

[dedalus]

.... would a deed of variation prevent IHT being payble should the original beneficiary die within seven years of receiving (and donating) the foreign inheritance?

No. The foreign will directs the bequest to the UK domiciliary who, in turn, makes gift(s) (as PETs) to his children.

A DoV alters the disposition of estate directed by a deceased's will. It is that disposition that has to be changed, if possible and in accordance with the applicable laws of the country of residence of the foreign domiciliary, so that the disposition is directly to the children in order to achieve the result you intend.

Thanks ptq.

Are you saying that a deed of variation drafted in the UK would not be sufficient to divert the proceeds to the children and avoid the future HMRC sledgehammer?
Basically the deed of variation needs to be drafted within the country of the foreign domiciliary. Did i understand correctly what you wrote?

[pqtaxation]

An instrument of variation prepared by solicitor in UK that meets the requirements of IHTA1984 s142 should suffice for HMRC.

[King_Maker]

I assume you are aware that an IOV needs the agreement of all the beneficaries?

[dedalus]

An instrument of variation prepared by solicitor in UK that meets the requirements of IHTA1984 s142 should suffice for HMRC.

Would HMRC be happy with this instrument even if it covered non UK based assets left by a foreign domiciliary?

[pqtaxation]

As I understand your OP, a foreign will of a non-UK domiciled deceased that bequeathed excluded property to a UK domiciled/UK resident legatee who wishes to vary the disposition so that it is to the UK domiciled/UK resident children of orginal legatee directly (rather than as a gift as a PET from original legatee).

As such, a deed of variation prepared in UK that satisfies IHTA 1984 s 142 should suffice for HMRC. Such a deed is not a do-it -yourself document, especially if as you say the value of the legacy to be varied is substantial, and so an appropriate solicitor should be used to prepare it for the particular circumstances.

You can get some understanding of the points of interest to HMRC from their IoV checklist at
http://www.hmrc.gov.uk/cto/iov.pdf

It could be that the variation affects national taxing authorities other than HMRC in UK and this should be checked with deceased’s lawyer – for example as in some countries estate duty payable depends on the relationship between deceased and beneficiary.

[maths]

Some of the comments made above are not correct.

pqtaxation states:

It is that disposition that has to be changed, if possible and in accordance with the applicable laws of the country of residence of the foreign domiciliary

king-maker states:

I assume you are aware that an IOV needs the agreement of all the beneficaries

Any Deed of Variation (DoV) is not require to conform to the laws of the non-UK domiciled testator. The issue is one of UK law.

Only the beneficiaries who are affected by the DoV are required to sign it ie not all of them.

Thus, a UK domiciled beneficiary could execute a DoV in favour of the children pursuant to which no UK IHT would arise even if the UK domiciliary died within 7 years of execution of the DoV; this would of course require that the conditions of s 142 IHTA 1984 (eg execution within 2 years) are satisfied.

[dedalus]

Many thanks. That is great news.

[dedalus]

Many thanks. That is great news.

maths, one last question.

Can DOV by used people who have inherited by law rather than will (where there was not a will), for example a spouse in the case of the UK or children in the case of some EU countries.

thanks again