Inheritance tax or Capital gains tax on bequest where there was a deed of variation

sueylouy

My two siblings and I were left half of my dad’s house on his death with the remaining half to his wife.  The inheritance tax was too much for the three of us to pay so we did a deed of variation, effectively giving back my step mum our half of the house until her death. This way we didn’t have to pay the IHT.

My step mum has now passed away – so I’m assuming that the inheritance tax on the whole property (except the first £325K) will now have to be paid.  Is there any CGT to be paid?  We have been left shares and savings also. 

xylophone

 The will was varied to grant an Immediate Post Death Interest in Possession to your stepmother (spouse of the deceased) and you and your brother became the remainder men of the Trust?

 See  https://techzone.adviserzone.com/anon/public/iht-est-plan/Tech-guide-IIP-trust-taxation

An IIP trust can be created on death either by the terms of the deceased's Will, the laws of intestacy or a deed of variation. This type of IIP is known as an immediate post death interest or IPDI. There is a chargeable transfer by the deceased unless the IIP is for the spouse or civil partner in which case it is an exempt transfer.

IIP trusts created on death are not treated as 'relevant property' and so the trust will not be subject to periodic or exit charges. Instead, the value of the trust will form part of the life tenant's taxable estate on their death.

This means that the current value of the property is the value for IHT purposes.

Or do you mean that your father's will was varied so that the whole property was left to his spouse absolutely?

Then the same applies - the current value of the property is the value for IHT purposes.

The property is now wholly inherited by you and your siblings?

You need to consider the transferable nil rate band and the transferable residence nil rate band when calculating IHT.

https://www.gov.uk/guidance/inheritance-tax-transfer-of-threshold

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/transferable-nil-rate-band-facts/

Marcon

sueylouy said:

My two siblings and I were left half of my dad’s house on his death with the remaining half to his wife.  The inheritance tax was too much for the three of us to pay so we did a deed of variation, effectively giving back my step mum our half of the house until her death. This way we didn’t have to pay the IHT.

My step mum has now passed away – so I’m assuming that the inheritance tax on the whole property (except the first £325K) will now have to be paid.  Is there any CGT to be paid?  We have been left shares and savings also. 

Much depends on how the deed of variation was worded - impossible to answer accurately without knowing that. 

sueylouy

Many thanks for the replies.  To clarify - we three siblings gave up our immediate entitlement to our 50% of the property for our stepmother to live in rent free until her death.  On her death, our original 50% has now come back to us and her 50% has been left to us.  So the property will be ours wholly.