IHT and deed of variation

[Luc]

When the first to die of a married couple dies and leaves his/her entire estate to his spouse it is understood that the advantage is that:

1) There is no IHT irrespective of the value of the deceased’s estate
2) The second to die qualifies for a double IHT exemption on his/her death.

However should the surviving spouse opt for a deed of variation in favour of his/her children, would the consequences would be the following?

1) Any amount of the deceased’s estate above £325,000 would then be subject to IHT.
2) The second to die would lose his/her right to a double IHT allowance.

Is there any way round this if the deed of variation route is taken?

[IanDarkwater]

The simple answer is no - but it depends on what spouse is trying to achieve.

If its simply to divert un-needed cash/assets immediately to kids then the no answer stands.

If its not that simple then the answer becomes a definite maybe.

[maths]

Your first two points are correct assuming both spouses are UK domiciled.

If the DoV is executed by the surviving spouse in favour of the children in an amount of £325K (and assuming no lifetime gifts by the deceased) no IHT is due on the deceased's estate although the deceased has used his nil rate band and thus no transfer is available to surviving spouse on her death.

If the surviving spouse wants to have a double nil rate band on death and also wants the kids to inherit something from the first spouse to die, don't execute a DoV and let the surviving spouse make lifetime gifts to the kids and if that spouse survives 7 years no IHT arises.