Can a Deed of Variation save IHT?

Langtang

MIL & FIL passed away last August, within 4 days of each other.

There was a 30 day clause in their Wills, so each estate is being dealt with as separate estates. This was in Scotland.

MIL's estate didn't have to pay any IHT, as there was only the house and a small (relatively speaking) of money.

FIL had everything else and as such, attracted IHT of c£110k

They always meant to change their wills to leave some money to my wife's friend, but sadly never got round to it. We're putting a DoV in place to make sure she gets what they wanted her her to have.

The estates are now as close to settled as you can get, IHT paid etc.

Would us arranging this DoV allow us to claim back some of the IHT that we have paid (allowing us tp potentially give more money to the friend)?

poppystar

Why would it affect IHT, the amount that tax is calculated on won’t have changed?  

Sea_Shell

Is your thinking that as MIL died first and left everything to FIL, then if FIL had done a DOV and passed some of his inheritance on, then when he passed, his estate would no longer fall into IHT territory?

I'm not sure that you can now effectively do a DOV on behalf of the deceased.

You (as a beneficiary of your FIL's estate i assume) now arranging a DOV to pass money onto someone else, other than your FIL's original beneficiaries, would help the estate of said beneficiaries (you), not reduce your FIL's estate for IHT.   AIUI.

Not sure about Scottish rules (if they differ here)

Keep_pedalling

Survivorship clauses can be very problematic for married couples and have not really been appropriate since the transferable nil rate band was introduced byGordon Brown. This can lead to additional IHT being paid as in the example below. 

https://www.willwriters.com/blog/survivorship-clauses-in-wills-and-when-to-avoid-them/

A deed of variation before applying for probate could have undone that clause, but I am not sure if it can be done post probate. You should take legal advice.

This is an example of why wills should be reviewed on a regular basis, to cover changes in personal circumstances and in tax legislation. Survivorship clauses are one problem, obsolete trusts are another.

Langtang

Thank you for your replies. Basic schoolboy error there - apologies for that.

getmore4less

Who died first?

theoretica

How much of MIL's tax free amount was unused?

Langtang

getmore4less said:

Who died first?

FIL passed first.

Langtang

theoretica said:

How much of MIL's tax free amount was unused?

Little, if any.

Langtang

Sea_Shell said:

Is your thinking that as MIL died first and left everything to FIL, then if FIL had done a DOV and passed some of his inheritance on, then when he passed, his estate would no longer fall into IHT territory?

I'm not sure that you can now effectively do a DOV on behalf of the deceased.

FIL passed first, but as wills had 30 day clauses nothing passed to MIL. Both estates were administered as separate estates.

In essence, I made a very basic arithmetical error in asking the question - particularly in the way I did.

getmore4less

Langtang said:

getmore4less said:

Who died first?

FIL passed first.

Quick summary

The DOV that is needed is from the FIL to the wife to make the FIL estate exempt
HMRC need to know about this.

Then the MIL estate gets the £1m if there is qualifying residential&beneficiary worth at least £350k  and no previouse gifts that reduces the regular nil rate band by either of them.

 The wife estate  can then DOV to get the money to the friend. 

Langtang said:

theoretica said:

How much of MIL's tax free amount was unused?

Little, if any.

Given they had potentially £1m if there was property(down sizing rules apply as well)

Has full use of this been made

What's the total estate?