Deed of variation

MiniEggs

Some years ago my father gave me some money towards a house.

He has now passed away and I am going through the probate process with everything being left to my mother

It is just over five years since he gave me the gift before he passed away

My solicitor said if I wanted to put the CGT allowance back into the nill rate pot I could do this using a Deed of variation

Am I correct in thinking that because the gift was over five years ago then I could pay the IHT on it 'now' at 16% which will mean the gift amount can go back into Dads nill rate pot which mum inherits

i.e. pay 16% now and then later when mum (his wife) eventually passes away and her estate is to be split between myself and my brother, my brother gets a fairer slice of the overall starting pie rather than do nothing and her estate pays 40% on that bit and my brother gets less overall.

Keep_pedalling

This does not make sense. The gift is not subject to CGT and the gift will only be effected by IHT if it exceeds £325k. 

The 16% you are quoting suggests the gift exceeded his NRB (£325k), so taper relief  kicks in, but even if the gift was over that amount you can’t undo the gift with a DoV.

So to clarify can you tell us how big this gift was, and exactly what you are proposing with the DoV?

MiniEggs

The gift is 300k so yes it doesn't attract IHT at the moment but then Mum only inherits 25k NRB and not 325k

So when she passes away and passes her estate to both her sons then (ignoring the primary house 175k x 2 NRB) her estate will start paying 40% IHT tax after the first 350k and not 650k ?

Keep_pedalling

MiniEggs said:

The gift is 300k so yes it doesn't attract IHT at the moment but then Mum only inherits 25k NRB and not 325k

So when she passes away and passes her estate to both her sons then (ignoring the primary house 175k x 2 NRB) her estate will start paying 40% IHT tax after the first 350k and not 650k ?

Why are you ignoring the RNRBs? with those her estate will have not pay IHT on £700k. A DoV cannot undo the gift he made 5 years ago so there is nothing that can be done about that. If your mums estate is over £700k and she has sufficient liquid assets she could even things up with a gift to your brother now. If she is a good health that gift there is a good chance that gift will fall out of her estate in 7 years time.

SeniorSam

You say that .... 'My solicitor said if I wanted to put the CGT allowance back into the nill rate pot I could do this using a Deed of variation'

Ask him to explain EXACTLY what he means by this. I can see no reason whatsoever for a Deed of Variation in your situation and unless I have missed something, it looks like someone is trying to create work that is not required.

Keep_pedalling is right - there is no inheritance tax to pay with the residential allowances of both parents and the IHT allowance of your mother.

MiniEggs

I was only 'ignoring' the RNRBs purely to try and highlight the numbers/allowances I was talking about

I've re-typed this from the Will so there maybe a typo but he said this clause would need careful consideration once probate had been granted, which I have not got to yet

IN this clause where the context so permits the expression "the Designated Sum" shall mean the maximum sum of money (if any) which can in the circumstances subsisting at my death be given by this clause without any liability being incurred for the payment of any taxes or duties on or by reason of my death And in particular (but without prejudice to the generality of the foregoing) the circumstances to be taken into account for the foregoing purpose shall include any chargeable transfers made by me during my lifetime (or events treated as such for capital transfer tax or inheritance tax purpose) the dispositions taking effect under this Will (apart from this present clause) or under any Codicil here to and any other disposition or devolution of property occurring on or by reason of my death

He talked about using a Deed of Variation being used to cancel this clause if it was worked out to be advantageous to do so

buddy9

The extract is a definition of ‘designated sum’ but it doesn’t say what is to be done with the designated sum.

The first post said everything was left to the spouse (your mother)?

SeniorSam

In what year was the gift to you made and how many years past before your father died.? The date of the Will may also help.

This has a bearing on the IHT payable when your mother dies and the allowances to offset that tax.

You will appreciate that the members here are trying to help without the full details, but it's getting there.

MiniEggs

The gift was made in 2016 and he lived just over five years after the gift was given

The Will was made in 2004

The next bit in the Will says

If my said wife shall be living at the end of the period of one month after my death then but not otherwise I GIVE the Designated Sum to such of my said sons as shall be living at my death and if both in equal shares PROVIDED THAT if any son of mine shall predecease me leaving a child or children living at my death who shall reach the age of 21 years such child or children shall take (if more than one in equal shares) the interest in this legacy that is his her of their parent would have taken had such a parent survived me

Mum, myself and my brother were all alive when Dad passed and remain so.

Keep_pedalling

That clause did not come into effect as your mother is still alive, so she inherited everything.

Your gift was within 7 years so it uses up 92.3% of his transferable NRB, and there is nothing that can be done about that now.

If you mother wants to even up things for your sibling she either needs to amend her will or make him a gift now. The latter option would make it a PET so there would at least be a chance it could be taken out of the IHT calculation on her death.

I can’t see any way a DoV can help with future IHT liabilities. With hindsight it would have been better if the gift had been a joint one from your parents.

getmore4less

If my said wife shall be living at the end of the period of one month after my death then but not otherwise I GIVE the Designated Sum..... 

the clause comes into effect if she Survives.

The clause effectively says up to the nil rate band(less any gifts) gets given to the son(s).


The Will was made in 2004

Transferable nil rate band came in  9 October 2007 making the use of the nil rate band clauses redundant.

DOV to not give the remaining part of the NRB and allow it to transfer to spouse with the asset


Any reason for this to not have been a joint gift?