Deed of Variation

Stingo67

Dear Dead_keen, What I was trying to do by posting to MSE was get some helpful advice from people who know a lot more than I do, I wasn't trying to do it all via LLM/AI. I thought this community could help. Apparently not, and if I have to, I will pay someone who is more knowledgeable and helpful than you.

Dead_keen

What I was trying to do by posting to MSE was get some helpful advice from people who know a lot more than I do, I wasn't trying to do it all via LLM/AI. I thought this community could help. Apparently not, and if I have to, I will pay someone who is more knowledgeable and helpful than you.

You're absolutely right!

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/82132961#Comment_82132961

I agree you should obtain paid for advice, not only with regard to your purported attempt to capture estate income with your variation but also with regard to the correct estate accounting and income tax compliance requirements required of you as executors before and after the execution of the variation.

Certainly I thought I had made it very clear in my posts that estate income derived from the estate asset prior to variation cannot be attributed to the replacement beneficiaries. That income always belongs to the original beneficiary for income tax purposes. Nothing of course prevents you from personally giving it away, but it cannot be read back as a gift from your father under his will so cannot be an aspect in your variation. Parliament in its wisdom chose not to enact enabling income tax legislation equivalent to section 142 (1) ( IHT) and section 62(6) ( CGT) and that absence should have been a clue.

Evidently however, my explanation did not land.

I think the problem here is that it is so axiomatic amongst professional practitioners that variations do not change the destination of underlying estate income, that they largely don't bother to mention it in articles on the internet. This then means AI and LLMs have very little to access in dealing with that aspect, especially if the enquirer does ask the right question. No doubt one of probably many scenarios where LLMs can mislead.

However to assist the OP ( and possibly others baffled by this debate) see below an article by Farrers solicitors ( solicitors to the Royal family) under the heading tips and traps, also similar article by BSG solicitors (para 8 ) :

https://www.farrer.co.uk/news-and-insights/deeds-of-variation-change-a-will-after-death/

https://www.bsglaw.co.uk/news/2016/7/2/the-deed-of-variation-a-tax-loophole-or-not

I would further observe, that there will be some rather archane matters related to estate administration, practice and procedure which will not be known by the bulk of DIY estate administrators on this forum, which may lead to guesswork or assumptions.

This particular question is example, and for an OP enquiring of such matters difficulty can arise as to what weight should be accorded to the various responses given especially where they conflict. In this regard it is always helpful to provide a doubting OP with specific independent reference points.

RAS

poseidon1 isn't interested in the fact that your children are adult. Those reviewing the DoV will want to know their status, so that where you need to write it down.

Dead_keen

This then means AI and LLMs have very little to access in dealing with that aspect, especially if the enquirer does ask the right question. No doubt one of probably many scenarios where LLMs can mislead.

I was bored and so as an experiment, I (***) asked various LLMs to respond to the question:

Does a UK deed of variation for IHT change the tax position of interest received before the variation?

I've only set out the first sentence or to of the answers rather than the full reponse detailing the whole rationale. These are the good answers:

ChatGPT - 5.6 Sol light

No. The statutory “read-back” in a deed of variation applies only for Inheritance Tax and Capital Gains Tax. Section 142 IHTA 1984 does not rewrite history for Income Tax purposes.

Claude - Opus 5 high

No. Section 142 IHTA 1984 is expressly confined to the Inheritance Tax Act — "this Act shall apply as if the variation had been effected by the deceased" — and the CGT equivalent in TCGA 1992 s.62(6) is confined to that Act. There is no income tax read-back at all.

Gemini - 3.8 Flash

A UK deed of variation (Instrument of Variation) under s.142 Inheritance Tax Act 1984 (IHTA 1984) does not change the income tax position of interest received or arising before the variation was executed.

qwen3:30b-a3b-thinking-2507-q4_K_M [a thinking variant]

No, a UK Deed of Variation for Inheritance Tax (IHT) does not change the tax position of interest received before the variation date.

qwen3:30b-a3b-instruct-2507-q4_K_M [a non-thinking variant]

No, a UK Deed of Variation for Inheritance Tax (IHT) does not change the tax position of interest received before the variation.

qwen3:32b [general instructions / reasoning model]

In the UK, a deed of variation for Inheritance Tax (IHT) can affect the tax position of capital assets but does not retroactively alter the tax treatment of interest received before the variation.

qwen3:8b [a small general model]

A UK deed of variation for Inheritance Tax (IHT) does not change the tax position of interest received before the variation

qwen2.5-coder:32b [a coding specialised model, so poor performance is expected]

A Deed of Variation in relation to an Inheritance Tax (IHT) context is used to alter how assets are distributed from an estate after someone has died. The primary purpose is often to mitigate future inheritance tax liabilities or to provide for beneficiaries in a more flexible manner.

In terms of the tax position concerning interest received before the variation, it's important to understand that a Deed of Variation does not affect transactions or interests that have already occurred

And to deliberately try to get the wrong answer, I used a very small model:

llama3.2:3b [a tiny model with a very poor answer]

A UK Deed of Variation to an Inheritance Tax Trust (IHT) can have a complex impact on the tax treatment of interest received by beneficiaries.

Generally, the rules state that interest earned within the trust will be subject to IHT, unless it is considered "gift interest" or "deemed income". If the trust receives interest on assets held before the Deed of Variation was made, this can affect the tax treatment of that interest.

(***) I said "I" but I am lazy and so just asked Claude to ask the others.

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/82133514#Comment_82133514

You asked the right question, no doubt partly helped by you already knowing the answer without AI 'assistance'.

However I do wonder if the OP in his use of LLM operated with a strong degree of 'confirmation bias' , ie cherry picking or configuring a response to accord with his stated intention to alienate income as well as estate capital. Seems to me the rationale he quoted in his 10.42am post can only be explained on that basis.

In any event hopefully a paid adviser will give him a correct steer on this issue.

Dead_keen

no doubt partly helped by you already knowing the answer without AI 'assistance'

Yep, I'm old enough to have forgotten when I first learnt this. More than a third-of-a-century ago? Certainly a good four years after I first encountered machine learning.

jem16

https://forums.moneysavingexpert.com/discussion/comment/82133236#Comment_82133236

Can I just clarify one point in the income tax consideration please?

At what point is estate interest considered interest to the beneficiaries?

For example if a solicitor is handling the closure of bank accounts and then keeping it in a client account, the beneficiaries don’t receive anything until distribution of the estate. So for the purpose of apportioning income tax on that interest, what date is considered?

Dead_keen

At what point is estate interest considered interest to the beneficiaries?

For example if a solicitor is handling the closure of bank accounts and then keeping it in a client account, the beneficiaries don’t receive anything until distribution of the estate. So for the purpose of apportioning income tax on that interest, what date is considered?

The short answer is when you get the cash (i.e. the residuary is distributed, with interest being treated as received first).

A longer answer is when you get the cash (i) unless the solicitor has done practically everything to work out what the residue is, but (ii) has delayed the distribution to you. In that case it can be before you get the cash.

There are even longer answers (mentioning dividends, £500, R185, SA107, the lack of interest paid on some client accounts, and so on). Probably best to start a new thread with your actual facts if you want a longer answer.

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/82133909#Comment_82133909

From the beneficiaries perspective they are only taxable in the tax year they actually receive an estate distribution. They should receive from the executor an R185 certificate detailing gross taxable income and basic rate tax accounted thereon.

Of course this assumes there was sufficient estate income in the year to be taxed at all. If income ( from all taxable sources ) is below £500, it is tax free both at estate and beneficiary level - fuller guidance below

https://withfarra.co.uk/guides/income-tax-estate-administration-uk

For completeness I should mention there is an oddity here which is likely completely unknown to most DIY executors but may be applied by professional practitioners.

This relates to the interim distributions of any capital asset to a residuary beneficiary is deemed to carry with it their share of the estate accumulated taxable income to that date.

As a result, a residual beneficiary in receipt ( for example ) of the family car previously owned by the deceased, maybe a little dismayed to receive an R185 for a deemed income distribution for which no actual cash changed hands. This would nonetheless be the correct income tax outcome on the beneficiary eventhough no cash received at that point.

This goes beyond your intial question, but may assist others who find themselves on the receiving end of that circumstance.