Deed of variation to avoid possible future IHT

Dubbly

My wife is due an inheritance approaching 6 figures. As a couple our assets already exceed the £650K limit so we'd like to alter the will by deed of variation so one of our sons gets the money and we avoid any possible IHT on our estate due to this inheritance should anything happen in the next 7 years. We don't meed any of the money in either short or long term so it's a genuine 'gift'. Is deed of variation the best route to take ?

Yorkshireman99

Dubbly wrote: »

My wife is due an inheritance approaching 6 figures. As a couple our assets already exceed the £650K limit so we'd like to alter the will by deed of variation so one of our sons gets the money and we avoid any possible IHT on our estate due to this inheritance should anything happen in the next 7 years. We don't meed any of the money in either short or long term so it's a genuine 'gift'. Is deed of variation the best route to take ?

It is the only way. It is not a gift.

Keep_pedalling

If you do this in favour of just one child, are you going to going to amend your wills to compensate the other children, or are the others happy with this arrangement?

Assuming you own your own house, don't forget that for you the limit is climbing to £1m over the next few years.

getmore4less

Yorkshireman99 wrote: »

It is the only way. It is not a gift.

It is still a gift the DOV just gives it special tax status if written correctly.

SevenOfNine

getmore4less wrote: »

It is still a gift the DOV just gives it special tax status if written correctly.

Our solicitor said with a DoV the inheritance would be treated as if left directly to our grandsons by the deceased, not passing through our hands first. Though TBH, I'm not convinced he's the sharpest tool in the box despite his STEP membership.

Where would 'gifting' come into it?

tacpot12

Inheritance tax rules would normally treat the passing of the inheritance to another as a gift, and unless the DoV is made within two years and included a statement to the effect that it has on the inheritance tax payable by the original person who left the legacy to your wife, it will be treated as a potentially exempt transfer (aka a gift) from your wife. If she were to die within 7 years, further inheritance tax would become due. Properly written, and executed within two years, a DoV will remove the risk of the transfer incurring further inheritance tax.

getmore4less

SevenOfNine wrote: »

Our solicitor said with a DoV the inheritance would be treated as if left directly to our grandsons by the deceased, not passing through our hands first. Though TBH, I'm not convinced he's the sharpest tool in the box despite his STEP membership.

Where would 'gifting' come into it?

Deprivation of assets is the most obvious one.
(solicitor is wrong)

It is very common for the reality to be simplified for a specific case that does not apply to all cases.

In many cases the simplest way to explain DOV is sufficient but inaccurate.

Yorkshireman99

The solicitor is correct. You keep trotting this myth out. It is emphatically not deprivation of assets as far as local authority care is concerned. You wrongly assume that they can claim deprivation of asserts regardless of the circumstances or the length of time when the asset was disposed of. In any case given the OP's wealth then funding care is unlikely to be a problem.

SevenOfNine

Oops, sorry OP Dubbly. I've butted in on your thread to clarify a point about gifting (as it appears your circumstances are similar to ours). Hadn't meant to start a verbal fisticuffs!

The short answer to your question being "yes" in my opinion (see post #2 from YM99 succinctly summed it up).

Other points made may be worth considering, based on the assumption that you haven't already considered them.

Yorkshireman99

SevenOfNine wrote: »

Oops, sorry OP Dubbly. I've butted in on your thread to clarify a point about gifting (as it appears your circumstances are similar to ours). Hadn't meant to start a verbal fisticuffs!

The short answer to your question being "yes" in my opinion (see post #2 from YM99 succinctly summed it up).

Other points made may be worth considering, based on the assumption that you haven't already considered them.

No problem. You are welcome.

securityguy

Yorkshireman99 wrote: »

The solicitor is correct. You keep trotting this myth out. It is emphatically not deprivation of assets as far as local authority care is concerned. You wrongly assume that they can claim deprivation of asserts regardless of the circumstances or the length of time when the asset was disposed of. In any case given the OP's wealth then funding care is unlikely to be a problem.

Indeed, and it's depressing how many people in old age are having "deprivation of assets" waved at them as a bogeyman. For deprivation of assets to be at issue you have to engage in a transaction whose primary intent is to avoid immediately foreseeable care expenses. Not "depleting your savings while in good health" or "spending one of your two million pounds". Because to hear some people speak, buying a new car when you are 45, or going on a cruise in your sixties, or paying your grandchildren's school fees or mortgage deposit, or eating in a restaurant rather than begging for scraps in the street, is deprivation of assets, because, after all, you could save that money for when you are eighty instead. "Foreseeable" means "you are already in a position when it is likely that you will end up needing care:, not "you are 70". "primary intent" is where the arguments come, but if you do not have the immediate prospect of needing care, it doesn't arise anyway.

DOA does not mean "people of an age where it's possible they might need care in the next ten years must keep their savings against that possibility". Several of the transactions I have named may have IHT implications, but if you are in good health at the point at which you make them, or you are in poor health but retain assets and income sufficient to fund reasonably foreseeable expenses, they do not have DOA implications.

The classic deprivation of assets issue arises when someone who is in receipt of benefits and is the beneficiary of a will uses a DOV to pass the money direct to their children, rather than it becoming their asset and affecting their benefit. That's a much more immediate and direct chain of events.