Deed of variation - appropriate?

[Simon L]

A deceased's will (died 1 month ago) leaves a three way interest in a house valued at £850,000. The house is to be sold and the will provides that the £850,000 be split £275,000 to each of two children and £300,000 to the wife. Each child has received £50,000 in gifts in the last year.

Can we write a deed of variation that reduces each child's interest in the house to £75,000, and gifts the remainder of each entitlement to the widow, thus using fully the £250,000 zero rate allowance?

Could the widow then gift each child an amount, which would only be subject to IHT were the widow not to survive 7 years?

[Nigel Lord]

Simon L

A deed of variation seems the logical way to resolve this problem. This needs to be made within 2 years of the date of death and all beneficiaries need to consent.

The nil rate band is £255,000 and a proportion of the gifts (£6,000?) in the previous tax year will be covered by the annual gift exemption plus the previous year's exemption brought forward if unused. This would allow the children to receive a further £80,500 each.

If the widow subsequently makes an "UNCONNECTED GIFT" this will fall out of her estate after 7 full years. It is important that no arrangement is in place giving rise to a series of transactions the only purpose of which is to give rise to a tax saving, otherwise the precedent set in Furniss v Dawson and Ramsey could bite.

As usual professional advice should be sought.

Nigel Lord
Lord Associates
Taxation & Business Consultants
Caxton House
Old Station Road
Loughton
Essex, IG10 4PE
020 8418 9101 & 07769 931852

[Simon L]

Nigel

Many thanks - advice will be sought. I am assuming that an unconnected gift can only be such if there is no connecting documentation that links the relinquished monies with the subsequent gift.

We share a surname. Do you also have Lancastrian connections?

Simon Lord

[Nigel Lord]

Simon

Certainly, it would be difficult for the Revenue to contend that an arrangement was in place without any documentary evidence.

No Lancastrian connections. I am an exiled Brummie. I understand that my great grandfather was from the other side of the Pennines and that there is a connection with Thomas Lord of MCC fame (also a Tyke).

Please feel free to seek bespoke advice. We are able to provide a drafting service as well as tax planning.

Nigel