Using a deed of variation to reduce the amount of a previous gift

BR5500

My mother and I have been considering a deed of variation on my father's will. Part of the reason for this is to enable my mother to help me out financially now rather than after her passing and of course if coming from my father, the amount would be not be subject to the 7 year rule - while the total value of the Estate is currently substantially below the IHT threshold, there is no guarantee that this threshold will stay the same in the coming years.

My mother gifted me an amount a few months after my father's passing. If we did carry out a deed of variation relating to my father's savings, would it be possible to deduct the amount of my father's savings from the previous gift or would my mother need to transfer the amount of my father's savings to me at a date after the deed of variation was carried out.

E.g. if my mother gifted me £10k after my father's passing and then a deed of variation was arranged where my father's savings of £6k was left to me, would it be possible to simply view the original £10k gift as a gift of £4k now and for the £6k to be an upfront payment of my father's savings. In effect, would it be possible for it to be seen as though the £6k from my father is effectively paying back £6k of the original gift from my mother so that the gift would now be seen as £4k.

Hopefully this all makes sense. At the end of the day, unless IHT thresholds are changed wildly in the coming years, I won't be subject to it but I just wondered if a deed of variation could be used to effectively reduce the amount previously gifted by my mother and for it to be seen as inheritance from my father instead.

I fully appreciate this probably all sounds like "overthinking" things as such relatively small amounts are involved but it is something that has been on my mind recently. TIA.

Grumpy_chap

https://forums.moneysavingexpert.com/discussion/6661820/using-a-deed-of-variation-to-reduce-the-amount-of-a-previous-gift

How large is the joint Estate of your parents? Is it really likely to be liable to IHT?

Has your Mother got sufficient assets to meet her life wishes and needs, including care needs should they arise?

poseidon1

https://forums.moneysavingexpert.com/discussion/6661820/using-a-deed-of-variation-to-reduce-the-amount-of-a-previous-gift

A deed of variation for such a small amount seems pointless for an estate which by your own admission is substantially under the current £1 million threshold.

Your mother has an annual £3000 gift exemption available ( renews on the 6 April ), and anything gifted above that has no impact ( at all ) on an estate which currently has zero IHT exposure.

In 2024 you and your mother were contemplating half the house passing to you by DOV to be achieved by severing the joint tenancy by which your mother became sole owner. At that time her total assets (inclusive of the house) was only around £530k.

Bearing in mind you live there and anticipate doing so for the rest of your mother's lifetime this did not seem an unreasonable action which would give you piece of mind, at the expense of an overall £187k reduction to your father's transferable nil rate bands, but still leave your mother with £813k of NRBs on her passing , a figure still well in excess of her current net worth - the thread below refers-

https://forums.moneysavingexpert.com/discussion/6563016/cgt-iht-implications-of-mother-transferring-house-into-joint-names-with-son-both-live-at-the-house

If you are going to the cost and bother of a professionally prepared DOV, doing so by way of vesting 50% of the house in your name would seem to be a more worthwhile use of this estate reorganisation tool bearing in mind tax is not in anyway an issue here . However, have you and your mother shelved this as a possibility?

Jeremy535897

This is a legal question, and if the true amounts are substantial, you should seek legal advice. However, an unconditional gift made by your mother to you, even though it may be out of her inheritance from your father, is just that, and you can't rewrite it later.

If she always intended the transfer to you to be a loan, you would repay her out of money received in any variation of your father's estate, but it doesn't sound like that is the case.

Albermarle

 while the total value of the Estate is currently substantially below the IHT threshold, there is no guarantee that this threshold will stay the same in the coming years.

I would be very surprised if the current IHT limits were ever reduced.

The £325K nil rate band has been in place for 17 years, and is held another four years at least. Of course inflation has effectively reduced the real value, and it will no doubt be allowed to continue to do the 'dirty work' .

The RNRB has been in place for 9 years, so again inflation as reduced its real value without the Govt doing anything controversial, like reducing the actual figure.

With unused pension pots coming into play next year, the tax take from IHT is going up every year, without tinkering with the headline figures, which would be politically damaging.

So looks like no need for you to be worrying about IHT, gifts etc.

Keep_pedalling

Making a deed of variation from a spouse to a child is a totally pointless excessive. Anything you mother inherits from your father (assuming they were married or civil partners) would be covered by spousal exemption, but anything diverted to you via a DoV is not, so will eat into the transferable NRB so at best the effect will be neutral, but if your mother survived 7 years it could lead to more IHT to pay on the second death.

For example, if you mother inherits everything and owns a house worth at least £350k her estate will have £1M in IHT exemptions. If she gifts you £100k then although that stays in her estate for 7 years for IHT purposed her estate will still have £1M in exemptions.

If on the other hand she makes a DoV giving you £100k of your father’s estate then the transferable NRB is reduced buy £100k so total exemption is reduced to £900k. The effect is neural if she dies within 7 years, but if she lives longer than that it could add up to £40k in additional IHT.