Deed of Variation to Cancel/ Mitigate IHT by Giving Some of Our Inheritance to Our Mother?

[morningster]

Hello.

My father recently passed away from Coronavirus, God rest his soul. He and my mother were married but separated by mutual agreement for many years and own(ed) their home as tenants in common after the change from joint tenancy was made with Land Registry in early 2000s.

My father left my sister and me his share of a home worth now about £1.5m, therefore about £750,000. Ostensibly, that's a tax burden of 40% of £250,000 based on the current nil-band rate plus main residence allowance. There is nothing else in the estate bar £5000-odd in a current account.

My sister and I are on benefits: my sister has a significant enough mental health problem that she is not expected to work while on Universal Credit. I have been on Carer's Allowance as my father's carer for many years and currently applying for Universal Credit. This to say that, as "property-rich, cash-poor" folk, we cannot afford to pay the expected IHT bill unless we sell the house, but selling the house would be a killer given our circumstances.

I know I can get all beneficiaries - my mother, my sister and me - to agree to alter my father's will under a Deed of Variation, if it were possible to do so.

Is there a way to mitigate IHT, say by redirecting a third of my father's estate to my mother who, presumably as an exempt party, would pay no IHT while my sister and I, then inheriting about a £500,000 share of the property, would avoid IHT?

Another scenario: if, say - and as my father had wished in regard of his will - my sister's share of the estate (about £250,000) were put into a trust, my sister not being well enough to look after her affairs competently, could this be done in way that mitigated IHT?

I am going by the Government's own website statements on these matters, that is:

"You can change a will to:
* reduce the amount of Inheritance or Capital Gains Tax payable
* provide for someone who was left out of the will
* move the deceased’s assets into a trust
* clear up any uncertainty over the will"

Thanks in advance for any clarification on these matters you can provide.

P.S. Possible complication: my mother, although she lived in the UK for donkey's years ('63-'96, '99-'03), was married here, had her children here, worked here.. has lived in France since the 2000s and is a French citizen

[AGoodman]

Yes you can do this. You could give it to your mother outright or in trust to her for life to ensure that it comes back to you at some point. You will want to try to get some proper advice because you are then increasing our mother's estate and potentially still paying IHT, just later on.

Bear in mind that anything you give away under a deed of variation is still a gift (other than for IHT/CGT). It could be a deprivation of capital under the benefits rules if such a thing exists. I don't know if it is a thing or not.

If you did just want to inherit and pay the tax, bear in mind you only need pay 10% of the tax on land each year so £10,000 on application for the grant and £10,000 p.a. (the balance becomes payable if/when you sell).

You may well be able to borrow this sum if you are going to sell. If it's utterly impossible to raise the funds, HMRC may make exceptions and/or take a charge over the property (I may be making the charge part up).