Deed of Variation to reduce IHT

pip895

My Father recently passed away. My sister and I are executors and are intending to handle probate ourselves. From a first look at the estate it would appear that as things stand we are going to be paying IHT. We are interested in the possibility of using a Deed of Variation to reduce or even eliminate the IHT. Neither of us is desperate to ring every penny out of the estate and both have charities we support. In addition our father asked us before he died, to make provision for a number of people who have been kind to him in his last years and we obviously want to honor his wishes.

Am I right in thinking we can do both these things via a deed of variation? Can this be a single document signed by all the beneficiaries (Children & Grandchildren over 18) or does each beneficiary have to act separately?

Am I right in thinking that in diverting a proportion to charity this will reduce the IHT due on the estate and that as the total going to charities (including existing legacy's and new charity beneficiary's) is over 10% of the estate the % IHT will also reduce?

Yorkshireman99

pip895 wrote: »

My Father recently passed away. My sister and I are executors and are intending to handle probate ourselves. From a first look at the estate it would appear that as things stand we are going to be paying IHT. We are interested in the possibility of using a Deed of Variation to reduce or even eliminate the IHT. Neither of us is desperate to ring every penny out of the estate and both have charities we support. In addition our father asked us before he died, to make provision for a number of people who have been kind to him in his last years and we obviously want to honor his wishes.

Am I right in thinking we can do both these things via a deed of variation? Can this be a single document signed by all the beneficiaries (Children & Grandchildren over 18) or does each beneficiary have to act separately?

Am I right in thinking that in diverting a proportion to charity this will reduce the IHT due on the estate and that as the total going to charities (including existing legacy's and new charity beneficiary's) is over 10% of the estate the % IHT will also reduce?

Yes you can. Go to a solicitor and discuss it worth them

Linton

pip895 wrote: »

My Father recently passed away. My sister and I are executors and are intending to handle probate ourselves. From a first look at the estate it would appear that as things stand we are going to be paying IHT. We are interested in the possibility of using a Deed of Variation to reduce or even eliminate the IHT. Neither of us is desperate to ring every penny out of the estate and both have charities we support. In addition our father asked us before he died, to make provision for a number of people who have been kind to him in his last years and we obviously want to honor his wishes.

Am I right in thinking we can do both these things via a deed of variation? Can this be a single document signed by all the beneficiaries (Children & Grandchildren over 18) or does each beneficiary have to act separately?

Am I right in thinking that in diverting a proportion to charity this will reduce the IHT due on the estate and that as the total going to charities (including existing legacy's and new charity beneficiary's) is over 10% of the estate the % IHT will also reduce?

IANAL but from my experience and memory.......

1) You can do what you want with a deed of variation. For a deed of variation to take effect you need the approval of every beneficiary who would be adversely affected, you do not need a DoV to be approved by beneficiaries who were left and will still receive specific assets or specific sums of money. You dont really need a deed of variation to make small gifts to the people who have been kind to your father, just sort it out amongst yourselves after the proceeds have been distributed as there should not be any tax implications.. But I think you need to have one for the gifts to charity so it is clear that the donation comes from the estate, not from the beneficiaries.


2) Any donation to charity is free of IHT. Also, if the total donated is10% or more there is a reduction in IHT to 36% but it will not benefit you: the saved IHT is always less than the value of the donation. Not that you seem to be thinking along those lines.


3) The DoV is a single document signed by the appropriate beneficiaries.

getmore4less

DOV can be multiple documents for different bits of the estate.

If they change the tax status of the current estate the executor(s) also need to agree and sign.

Have you accounted for all the available nil rate bands, could be upto £950k.

BobFreeman

> Have you accounted for all the available nil rate bands, could be upto £950k.

Could you please tell more. I don't understand how it could be 950k with no tax

pip895

getmore4less wrote: »

DOV can be multiple documents for different bits of the estate.

If they change the tax status of the current estate the executor(s) also need to agree and sign.

Have you accounted for all the available nil rate bands, could be upto £950k.

I have assumed 325k+325k+150k = 800k Mum passed away 9 years ago so I assume only one 150k is that right?

getmore4less

pip895 wrote: »

I have assumed 325k+325k+150k = 800k Mum passed away 9 years ago so I assume only one 150k is that right?

2 residential nil rate as long as there £300k of qualifying property.
(Downsizing rules can be used)

SeniorSam

You do not need a deed of variation, as executors can carry out an expression of wished without that being done. The executors need to agree the amounts and beneficiaries of the additional gifts and sign to say you have all agreed to make the gifts in accordance with the wishes your Father made. Gifts to charity would reduce the IHT, but as already stated you should have two lots of IHT allowance ans well as tow lots of Residential allowance before any IHT liability.

getmore4less

The issue with not doing a DOV is that any changes become gifts from those beneficiaries that give up a share and will sit as PETS on their own estates for 7 years

Tom99

SeniorSam wrote: »

You do not need a deed of variation, as executors can carry out an expression of wished without that being done. The executors need to agree the amounts and beneficiaries of the additional gifts and sign to say you have all agreed to make the gifts in accordance with the wishes your Father made. Gifts to charity would reduce the IHT, but as already stated you should have two lots of IHT allowance ans well as tow lots of Residential allowance before any IHT liability.

The executors cannot make any changes to the will, only the beneficiaries.
If the document signed by the beneficiaries does not follow the instrument of variation checklist the variation will not be backdated to the date of death for CGT/IHT purposes and the additional charity exemption would not be allowed.
The document does not need to be a deed but if a saving in IHT is hoped for it is probably better to do it that way as it will need to be sent to HMRC and there is less likelihood of executing an invalid document.
Any charity receiving an increased inheritance needs to be notified of this in writing and a copy of a letter from the charity showing they are aware of the legacy needs to be provided to HMRC if IHT exemption is to be claimed.(clearly an anti-fraud measure)

castle96

Just done similar/DofV. £600 additional fees to solicitor for 'simple' form