Deed of variation

Parkhouse20

Last year from my savings I gave my daughter £20,000 to put into her SIPP to regain her tax and also £20,000 to my son to put into an ISA and LISA to maximise his allowances. He is a non tax payer so I also put £2880 into his SIPP to be topped up to £3600 by the government. These of course are PETs above the usual gifting allowances. I am due a large inheritance from my recently deceased father and to avoid a potentially large IHT bill further down the line I am proposing to execute a Deed of Variation to pass much of the inheritance to my 2 children. Here is the question…. If I transfer extra money to the children through the deed of variation and they pay me back any money I have gifted them , does this remove the PETs for IHT purposes ? Are there any other HMRC issues with doing things this way ? 

Keep_pedalling

No, gifts are absolute and once given becomes your children’s assets. If they if they give the money back to you then effectively they will be gifting back to you and creating there own PETs. If you were in a position to make these gifts without causing yourself hardship what is the point of them giving it back to you anyway? Especially if your estate is already in IHT territory. 

sheramber

Is your estate  before gifting your children, liable for IHT?

Will it still be liable to IHT after these PETs?

If you receive inheritance money will your estate be liable for IHT?

If your children gift the inheritance money back to you will your estate be liable for IHT?

Why do you think that thePETs will no longer count if your children gift the inheritance money back to you?

Parkhouse20

Why can’t the transfer of money to my children last year be counted as a loan which is then paid back so there are no PETs either way. As it stands , those transfers of money are PETs and if my wife and I both pass away within 7 years there will be at least £40000 worth of money not subject to IHT as our estate is into the IHT payable category. 

Yes on all counts . I was hoping the repaying of monies back to me would be classed as repaying a family informal

loan . Do HMRC really want to see a formal loan document in place ?

Keep_pedalling

Technically it would be fraud although you would probably get away with it. The problem is HMRC would also see a deed of variation the coincided with a payment going the other way as a contrivance.

What I really don’t understand here is that you appear to already be in IHT territory so why on earth do you want the money back? 

sheramber

But your children would not be returning the PETs, as that money has been invested, they would be returning part of the inheritance money.

Parkhouse20

I’m still in my 50s and not retired yet so there is only a certain amount I can comfortably pass on to my children.  The idea of increasing the amount to the children above what I can afford to pass on would allow them to refund the money I have previously gifted/ loaned them so HMRC do not deem me to have made a PET with the 7 year survival rule.   If I just gave them a smaller inheritance via the deed of variation , the £40,000 I have gifted/ loaned to them will eat into my £325,000 Ril Rate Band and more of my estate will be taxed at 40%. 

Parkhouse20

sheramber said:

But your children would not be returning the PETs, as that money has been invested, they would be returning part of the inheritance money.

If I call money I have given them a loan and not a PET this shouldn’t be an issue ?
 

Keep_pedalling

Parkhouse20 said:

sheramber said:

But your children would not be returning the PETs, as that money has been invested, they would be returning part of the inheritance money.

If I call money I have given them a loan and not a PET this shouldn’t be an issue ?
 

Well apart from getting your executors to commit fraud for what is quite a small IHT liability. If you have given away more than you can afford then adjust the DoV to beep a small amount of your inheritance for yourself don’t complicate things for your loved ones after you die.

You are only in your 50s so the chance of you dying in the next 6-7 years is pretty slim unless you already have a life threatening illness. 

Parkhouse20

Still not sure why paying back loaned money is fraud. The money was advanced to the children to beat the end of tax year ISA and pension deadlines. It was known they would be getting an inheritance in the near future to cover this. Are you saying that HMRC second  guess potential motives for someone using a deed of variation to pass inheritance direct to the grandchildren ? Would HMRC treat this differently then if the money had gone directly to the grandchildren in the original deceased grandfather’s will? 

NorthYorkie

The fraud is not the paying back of the money; it is pretending what was originally a gift, is actually now a 'loan'!! You cannot change the true nature of a payment by simply decided to change the name you give it. The true nature of the payment depends upon your intentions at the time. Your first post makes it abundantly clear that these payments were gifts.
You are going to get the value of these gifts back anyway under your inheritance.