Inheritance tax advice. How does it work?

tabby1471

[FONT=Times New Roman,serif][FONT=Calibri,sans-serif]Hi[/FONT][/FONT]
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[FONT=Times New Roman,serif][FONT=Calibri,sans-serif]Unfortunately my mother passed away recently and left a substantial estate in her Will.

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[FONT=Times New Roman,serif][FONT=Calibri,sans-serif]The problem is, the Will places me as the sole beneficiary and I want to redistribute it amongst myself and my 3 children.[/FONT][/FONT]
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I currently have a company dealing with this and they gave me this advice (below in blue) and what I really need to know is, is it correct and is this the most financially effective way to distribute it the Estate?

As I thought Gifting large amounts of money would immediately be liable for Tax?

I'd appreciate any advice in lay terms. I've been to various sites and it seems so complex and confusing.

Apologies in advance if I've posted this in the wrong area
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[FONT=Times New Roman,serif][FONT=Calibri,sans-serif]“[/FONT][FONT=Arial,sans-serif]We discussed the possible Instrument of Variation (IOV). I understand that the intention is to gift ¾ of the residue to your three children equally. The advantage of having an IOV drawn up is so that the amended distribution of the residue is “read back” to the Will, so the gifts come from the estate to the new Beneficiaries, i.e. your children. [/FONT][/FONT]
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[FONT=Times New Roman,serif][FONT=Arial,sans-serif]Whilst there are no immediate benefits in terms of Inheritance Tax, an IOV would prevent your estate being inflated. Should an IOV not be prepared and you then gift monies to your children rather than have the distribution under the Residuary Estate, the gifts could be classed as potentially exempt transfers for Inheritance Tax within seven years. I can confirm this is the only taxable risk of gifting the money. [/FONT][/FONT]
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[FONT=Times New Roman,serif][FONT=Arial,sans-serif]As we are within two years of your late mother’s passing, we would recommend an IOV to vary the Beneficiaries of the estate. Of course, it is entirely your decision.” [/FONT][/FONT]
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jem16

tabby1471 wrote: »

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I currently have a company dealing with this and they gave me this advice (below in blue) and what I really need to know is, is it correct and is this the most financially effective way to distribute it the Estate?

As I thought Gifting large amounts of money would immediately be liable for Tax?

The advice seems perfectly correct to me.

There is nothing you can do to avoid any IHT due on your mother's estate. What you can avoid is IHT due on your own estate when you die by using the Deed of Variation being proposed so that the money passes staraight to your children from their grandmother.

If it passes to you and then later to your children, anything in excess of the IHT threshold would be taxable.

John_Pierpoint

There are so many questions that need answering before anyone could start to advise you on the joys of an IOV; often called a Deed of Variation, to be sure that when you give away money for no apparent benefit to yourself, you really really know what you are doing.

There is a "Which?" book called "Giving and Inheriting" it is one of three that are relevant to the financial aspects of dying.

Investing circa 25 GBP to buy all three (see Amazon etc.) would be a good investment. It is vital that you get the up to date versions, so check that all the copywrite dates are within the last few years as significant changes were made in 2006 & 2007.

How much is your firm of advisors proposing to charge for the IOV ?

Not all probate firms have qualified or competent staff and an IoV can be tricky as it needs to be stitched into the existing will, however confusing that might already be.

https://forums.moneysavingexpert.com/discussion/1935955

agrinnall

My lay understanding is that the IOV would only be better if you happened to die within 7 years. If you receive all the money from your mother's estate and then pass some of it on as gifts to your children, if you die within 7 years and your estate including the value of the gifts is worth more than the IHT threshold (currently £325K) then IHT will be due on the estate. If you live more than 7 years then there is no tax at all to pay on the gifts. If you have an IOV on your mother's will then any IHT will be charged against her estate (as it would be anyway if you are sole beneficiary) - if the estate is below the threshold then there is nothing to pay at any time - except whatever the solicitor charges to prepare the IOV. If you think you're likely to live another 7 years then the choice is yours, the result will be the same.