Deed of Variation to remove IHT liability…tell HMRC?

StevieD54

I’ve read through the MSE guide on Probate https://www.moneysavingexpert.com/family/guide-to-probate/ but I’m unsure how to deal with my particular issue.

My father died last month and in his will he has left his property (it’s in his name only) to my mother, who still lives in it.  He has also left her his Premium Bonds (£50k).  He has left £1k each to 2 or 3 friends and the remainder is to be split 50/50 between my sister and I.  This remaining amount is in the region of £430k, so a large IHT bill would be due, probably £40k plus.

However, as executor of his will, my plan is to create a Deed of Variation and assign about £130k more to my mother, thus leaving approx only £300k to my sister and I, which should then leave his estate not liable for IHT, as this would be within the £325k allowance.  So no beneficiaries would be adversely affected other than my sister and I, which we have agreed is not a problem.  (by the way, one of the £1k beneficiaries lives overseas and I believe all beneficiaries of the will must sign the DoV, which is a pain, and will invariably cause a delay).  I have not yet applied for Probate.

So my issue is this:  The MSE guide says you have to inform HMRC of the estate value to see if IHT is due, which it would be, unless a DoV is created.  Do I just go ahead and create the DoV but inform HMRC what I’m doing?  If I tell HMRC the estate value I’ll get a IHT bill, so how do I avoid that?

Keep_pedalling

If the DoV makes his estate an excepted one with no IHT return to submit then you don’t need to inform HMRC what you have done but you should send the DoV documentation along with the original will to the probate office.

poppystar

Only beneficiaries adversely affected by DoV need to sign so the £1k recipient living abroad is not an issue. It is just your sister and you who need to sign.

StevieD54

Keep_pedalling said:

If the DoV makes his estate an excepted one with no IHT return to submit then you don’t need to inform HMRC what you have done but you should send the DoV documentation along with the original will to the probate office.

Thanks for your reply.  What does the bit I’ve made bold mean exactly?

poppystar

It means what the next bit says - no IHT return needs to be completed. 

There are various categories of excepted estates. In your case it would be because the total value of the estate after the DoV that is not going to your mother is below the allowance available for IHT. Exactly why you are doing the DoV - not only does it mean no tax to pay it also means no long forms to fill in, just the Probate one - double win!

getmore4less

StevieD54 said:

I’ve read through the MSE guide on Probate https://www.moneysavingexpert.com/family/guide-to-probate/ but I’m unsure how to deal with my particular issue.

My father died last month and in his will he has left his property (it’s in his name only) to my mother, who still lives in it.  He has also left her his Premium Bonds (£50k).  He has left £1k each to 2 or 3 friends and the remainder is to be split 50/50 between my sister and I.  This remaining amount is in the region of £430k, so a large IHT bill would be due, probably £40k plus.

However, as executor of his will, my plan is to create a Deed of Variation and assign about £130k more to my mother, thus leaving approx only £300k to my sister and I, which should then leave his estate not liable for IHT, as this would be within the £325k allowance.  So no beneficiaries would be adversely affected other than my sister and I, which we have agreed is not a problem.  (by the way, one of the £1k beneficiaries lives overseas and I believe all beneficiaries of the will must sign the DoV, which is a pain, and will invariably cause a delay).  I have not yet applied for Probate.

So my issue is this:  The MSE guide says you have to inform HMRC of the estate value to see if IHT is due, which it would be, unless a DoV is created.  Do I just go ahead and create the DoV but inform HMRC what I’m doing?  If I tell HMRC the estate value I’ll get a IHT bill, so how do I avoid that?

Beneficiaries do the DOV, as this effects the taxes on the existing estate the executor needs to approve the proposal.

You have not said but were your mother and father were married at the time of his death?
Any other previously deceased spouses as you can use their transferable allowances  

if you don't need the money you could consider passing it all to your mother so she retains the transferable nil rate band.
she can then consider gifts that become PETs and potentially fall out of her estate.

if she has enough nil rate band to cover her assets that option may not be needed.

StevieD54

getmore4less said:

Beneficiaries do the DOV, as this affects the taxes on the existing estate the executor needs to approve the proposal.

You have not said but were your mother and father were married at the time of his death?
Any other previously deceased spouses as you can use their transferable allowances  

if you don't need the money you could consider passing it all to your mother so she retains the transferable nil rate band.
she can then consider gifts that become PETs and potentially fall out of her estate.

if she has enough nil rate band to cover her assets that option may not be needed.

Yes, they were married, hence my plan to allocate £130k to my Mum, as any inheritances to spouses are protected from IHT as I understand it?

StevieD54

poppystar said:

It means what the next bit says - no IHT return needs to be completed. 

There are various categories of excepted estates. In your case it would be because the total value of the estate after the DoV that is not going to your mother is below the allowance available for IHT. Exactly why you are doing the DoV - not only does it mean no tax to pay it also means no long forms to fill in, just the Probate one - double win!

Thanks poppystar……for both replies.  It’s good to know only those adversely affected by a DoV need sign it.  And your ‘excepted estates’ explanation is reassuring, it confirms my plan is ok and, more importantly, legal!

StevieD54

After reading more on this on various ‘legal firms’ websites, I have read this (which has confused me slightly!)……
——
It is important to note that if a Deed of Variation changes the amount of Inheritance Tax due, a copy of the Deed must be sent to HM Revenue & Customs, within 6 months of the date of the Deed.
——
I was under the impression that notifying HMRC was only necessary if the DoV increases the amount of IHT due?  It’s a moot point though I hope, as the DoV will mean IHT won’t be payable at all and therefore HMRC do not need to be informed.  The Probate office do though, as I understand it.

StevieD54

The plot thickens…..

The following question (10) is taken from this government document……

——

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/373615/IOV2.pdf

Q10. Does the variation affect the Inheritance Tax (IHT) payable in this estate?

If the answer to question 10 is Yes, you should send a copy of the variation and this checklist to H.M Revenue & Customs (HMRC).

——

Well the answer in my scenario is ‘Yes’, but I’ve been given advice in this thread saying I don’t need to send the DoV to HMRC.  I’m a bit confused tbh.

StevieD54

And my final question…….it would appear that a DoV must be handwritten, rather than typed out, then signed by all parties (plus a witness).  Is this actually the case in practice these days?  My handwriting is dreadful!