Probate Deed of variation lost £14,000

Cafawin

Hi my solicitor adviced that I should do a Deed of variation to save £5000 inheritance tax due.
They did not tell me that this would increase my capital gains tax by £14,000 and I would be at a financial loss.
The deed of variation changed the market value by 50k (50k x 28 = £14,000)
They did not tell me any information about CGT before signing the Deeds of variation.

They have said they will ask HMRC to change the market value to the selling price. Is this even possible?

The beneficiary is a child.

Any advise would be much appreciated.

Thanks

buddy9

In what way did the DoV alter the value?

74jax

What was in the original Will, and what had the DoV changed it to? 

Cafawin

buddy9 said:

In what way did the DoV alter the value?

I have two probate, the property was in Grandma's name and she died in 2018.  Her son died in 2020. The property was valued twice at 2018 and 2020.  The Deeds of variance changed from the Market value from 2020 to 2018.  So it is £50,000 less and I need to pay CGT on £50k.

The Deeds of variation bypassed her son and went to her grandchild.

If the deeds of variation was not done, the market value from 2020 would have been used and saved me £14,000.

The beneficiary is a minor is this helps. 

Cafawin

74jax said:

What was in the original Will, and what had the DoV changed it to? 

There was no will. So the property would pass from Grandma to son to grandchild and cause £5000 IHT.  Deed of variance was done to use nil rates.  But I was not told that it would use the market value form grandma DOD and increase CGT by £14,000.

If it was not done the market value from son's DOD would be used and the CTG would be less.

Cafawin

CGT deductions do not alter the loss as the same deductions would be applied with or without the Deeds of variation.

RAS

Hi, I think I understand the trail but there's a lot of information missing.

Was the grandmother who died in 2018 ever married? Was her son married?

What was the value of the house in 2018 and in 2020? 

If grandmother was married and the house was inherited by a direct descendant, it is possible that the administrators could have used her husband's nil rate band, as well as her own. 

Keep_pedalling

You need to fill in all the gaps. I am assuming the DOV was on GM’s estate and that the CGT issue is with the sale of the house which had been transferred to the GC by the DOV but it is not that clear.

Cafawin

Keep_pedalling said:

You need to fill in all the gaps. I am assuming the DOV was on GM’s estate and that the CGT issue is with the sale of the house which had been transferred to the GC by the DOV but it is not that clear.

yes that is correct.  If the house went from GM to son and then GC £5000 IHT would be due to pay, using all nil band rates available.  So a deed of variation was done so house passed straight to GC and use nil bands.

But this changed the market value from £525k to £475k in the CGT.
I saved £5000 IHT but CGT increased by £14,000 resulting in £9000 loss.

House was sold for £675k

RAS

Was grandmother married/widowed? When?

Keep_pedalling

Cafawin said:

Keep_pedalling said:

You need to fill in all the gaps. I am assuming the DOV was on GM’s estate and that the CGT issue is with the sale of the house which had been transferred to the GC by the DOV but it is not that clear.

yes that is correct.  If the house went from GM to son and then GC £5000 IHT would be due to pay, using all nil band rates available.  So a deed of variation was done so house passed straight to GC and use nil bands.

But this changed the market value from £525k to £475k in the CGT.
I saved £5000 IHT but CGT increased by £14,000 resulting in £9000 loss.

House was sold for £675k

How exactly did this change the market value? Surely the value can’t be changed by a DOV.