Deed of Variation

Dead_keen

4. I'm also left wondering if there is a typo (£200,000 is mentioned but only 2x £50,000 is being given away),

vs

the £200k is treated as passing straight from your parents to your children

Dead_keen

Oh you will pay income tax interest the kids receive (if they are unmarried minors and it is more than £100) as the £50,000 they each receive is really a gift from you rather than their grandparents.

kermchem

https://forums.moneysavingexpert.com/discussion/comment/82130763#Comment_82130763

No, a Deed of Variation changes the effect of grandparents’ will. The money went from them to grandchildren.

Dead_keen

No, a Deed of Variation changes the effect of grandparents’ will. The money went from them to grandchildren.

Sorry, but that is wrong. From an income tax perspective the gift was from the parent who made the deed of variation.

Dead_keen

It's not a gift, it's an inheritance.

The OP's parent left in their will some money to the OP. The OP gifted some of that money to their own children.

For income tax that is the end of the story. The interest rule for unmarried minor children therefore applies.

For inheritance tax (and capital gains tax) the deed of variation pretends that the gift from the OP never happened and instead the money for the OP's kids was left in the grandparents will. So the OP does not have a PET.

So it is both a gift (income tax) and not a gift (IHT and CGT).

poseidon1

To hopefully end the debate with regard to the treatment of estate income prior to the DOV, @Dead_keen is correct. A DOV never alienates prior estate income in favour of the replacement beneficiaries. Those beneficiaries only become entitled to income arising after the DOV, with pre DOV income remaining with the original beneficiary.

How this works for estate accounting and tax compliance, is that once distributions have been made pursuant to the DOV, the executor accounts for and pays income tax due on all estate income, assuming the income exceeds the annual £500 threshold.

The taxed income related to the DOV asset, is then time apportioned between the original beneficiary and the replacement beneficiaries, and the executor issues them with R185 tax deduction certificates, setting out the taxed income they have received/ entitled to, which they need to report to HMRC for personal tax purpose ( higher rate tax or refunds thereon maybe in point).

Coming now to the question of what is the position if the DOV recipients are minor children of the DOV donor.

This may not be an issue for the OP if his children are both over 18, however again @Dead_keen is correct.

If they were minors, until such time they attain age 18 all income resulting from the varied estate asset is taxed on the parent if the income exceeds the very low £100 threshold.

This is known as the parent settlor tax trap, and despite being on the statute books in one form or another since 1991, it appears the general populace are largely and blissfully unaware of its exsistence. The following STEP Journal article explains -

https://journal.step.org/step-journal-april-2011/parental-settlements

Stingo67

Thanks all, sifting through all of this and more AI help, I have got here:-

DEED OF VARIATION

DATED: 1 October 2026

PARTIES

(1) Fred Bloggs of [full address] (the “Current Beneficiary”)

BACKGROUND

(A) Arkwright Bloggs (the “Deceased”) died on 1 January 2026 leaving a Will dated 1 January 1990 (the “Will”).

(B) Under the terms of the Will the Current Beneficiary became entitled to a 50% share of the Deceased’s property and a 50% share of the residue of the estate.

(C) The Current Beneficiary wishes to vary part of that entitlement in the manner set out in this Deed.

OPERATIVE PROVISIONS

1. Definitions

In this Deed:

“Gift of Money” means the sum of £100,000 forming part of the Current Beneficiary’s entitlement under the Will.

“New Beneficiary 1” means [Full Name] of [Address].

“New Beneficiary 2” means [Full Name] of [Address].

“Will” means the Will of the Deceased dated 1 January 1990.

2. Variation

2.1 By this Deed the Current Beneficiary irrevocably varies and redirects the Gift of Money so that the Will shall take effect as if the Gift of Money had been left by the Deceased as follows:

(a) £50,000 to New Beneficiary 1 absolutely; and

(b) £50,000 to New Beneficiary 2 absolutely.

2.2 The New Beneficiaries shall be treated for all purposes as having become entitled to their respective shares of the Gift of Money from the date of the Deceased’s death.

3. No Consideration

This Deed is made voluntarily and no consideration in money or money’s worth has been or will be given by any person in connection with the variation effected by this Deed.

4. Tax Election

The Current Beneficiary intends that the provisions of:

(a) section 142(1) of the Inheritance Tax Act 1984; and

(b) section 62(6) of the Taxation of Chargeable Gains Act 1992, shall apply to the variation effected by this Deed.

EXECUTION

IN WITNESS whereof the Current Beneficiary has executed this Deed as a deed on the date first written above.

SIGNED as a DEED by the said

FRED BLOGGS

in the presence of:

Signature of Current Beneficiary: ________________________________

Date: ______________________________________________________

Witness Signature: ________________________________

Date: ___________________________________________

Witness Name: ___________________________________

Witness Address: _________________________________

________________________________________________

Witness Occupation: ______________________________

poseidon1

Be aware you should be under no illusion that clause 2.2 is effective for income tax purposes. 'All purposes' in that clause is perhaps misleading in that regard? Has there been any interest income generated on cash assets since date of death?

Also perhaps confirm your children are not minors to curtail speculation on that front, since if they were the deed does not cover the fact that they cannot give a valid receipt for the 'gift' you are making to them ( trustees would need to be appointed).

Stingo67

Sorry, should have confirmed, the children are not minors. And yes they will receive any interest earned on their proportions. This will added to the funds transferred, and recorded alongside this deed.

This is why I included it, maybe overkill?

What “for all purposes” does

It makes the retrospective treatment as wide and unambiguous as possible. It tells the reader (and any court or HMRC officer) that the New Beneficiaries are to be treated as entitled from the date of death in every relevant respect — not just for some limited purpose.

Typical things it covers include:

• entitlement to the capital itself
• entitlement to any interest or income earned on that capital since the date of death
• tax treatment (inheritance tax, income tax on the interest, etc.)
• how the gift is accounted for in the estate accounts
• any other legal or administrative consequence that turns on the date of entitlement

Without those three words, a court or tax authority could theoretically argue that the back-dating only applies to certain matters and not others. Adding “for all purposes” shuts that argument down.

Is it necessary?

• Legally essential? No. Many deeds of appointment or variation achieve a similar result with simpler wording such as “as if they had been named in the Will from the date of death” or “with effect from the date of death.”
• Practically useful? Yes. It is standard, cautious drafting. It reduces the risk of later dispute about whether interest belongs to the New Beneficiaries, whether the gift is treated as vesting for tax purposes from death, and so on.

Dead_keen

You can't write some flowery words on paper and have it change the income tax treatment. The only reason it changes the IHT position is because there is a bit of IHT legislation allowing that fiction. There is no income tax equivalent.

So you need to use a better LLM or ask it specifically about why people who know a lot about tax think it is completely and utterly wrong.