Deed of Variation

jem16

https://forums.moneysavingexpert.com/discussion/comment/82134215#Comment_82134215

I probably wasn’t as clear as I should have been as I was thinking about what you both said about the Deed of Variation and interest being due to the original beneficiary.

For example ;

A bank account closed by solicitor in August which included interest payable since death. Funds not distributed at that point so money held in solicitor’s account.

Deed of variation done October.

Funds distributed November which includes further interest from client account.

For income tax purposes, and therefore R185, how is the interest apportioned?

I don’t have any specific question of my own to ask here. Just trying to understand what has been said.

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/82134338#Comment_82134338

In the context of a DOV, the original beneficiary should receive a time apportioned R185 allocating to them all the accumulated estate income ( from whatever source) to date of variation.

The recipient of the DOV then gets an R185 for the small rump of income received after the DOV (in this case a small amount of the solicitor's client account interest).

The actual capital and income distribution from the estate should then follow that apportionment.

However, and in all fairness to the original OP of this thread, I am beginning to wonder if any DIY beneficiaries/ executors involved in DOVs are at all aware of these rules let alone follow them.

Be interested to see if anyone seeing this thread who has executed DOVs in past where estate income in point, did adhere to these precepts.

jem16

https://forums.moneysavingexpert.com/discussion/comment/82134603#Comment_82134603

Thanks.

I did deal with a Deed of Variation last year to divert some of my inheritance to my sons. I did it purely because of future IHT on my own estate. I was certainly not aware of the income tax side of it nor was it ever mentioned by the lawyer who drew up the Deed of Variation.

Having read this and your replies, it made me go back and look and fortunately all estate interest was paid out by the bank after the DOV so the R185 appears to be correct.

Makes me wonder what would happen if it wasn’t though? I can’t see how HMRC could check that beneficiaries report correctly.

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/82134828#Comment_82134828

I think you are absolutely correct on the lack of HMRC visibility and oversight on the tax outcomes resulting from DOVs.

Since HMRC ( unwisely) state they are not interested in seeing DOVs unless it changes IHT payable by the estate, seems to me all sorts of non compliant actions can be innocently perpetrated by beneficiaries/executors wielding DOVs unaware of the correct process and compliance requirements.

From what you say even where a solicitor is in the background, there maybe a lack of professional advice to alert their clients of the granular tax and estate accounting changes resulting from DOVs. Those shortcomings at the professional level is not overly surprising, my past professional experience is that lower echelon law firms are weak on income tax and CGT compliance matters and similarly with regard to the correct estate accounting procedure. They simply don't get the same intensive training in this regard compared to accountants proficient in this area.

jem16

https://forums.moneysavingexpert.com/discussion/comment/82134884#Comment_82134884

I did the informal estate reporting myself this time as the lawyer was only going to report the interest and not the dividends or house sale (not CGT due but HMRC advised me that I should still report everything).

HMRC did agree with everything and tax owed by the estate during the Admin period was exactly as I had worked out. They haven’t questioned my SA reporting on interest received from the estate to me.

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/82134905#Comment_82134905

Yes I see we had an earlier exchange this year on R185s related to beneficiary distributions .

I remember you were one of the very few posters who have ever raised an R185 question since I have been active here, and I see you then followed through with the requirement to self assess your own R185 income, so perhaps you may have been more diligent than the average in trying to get things right?

Certainly between your proactive interactions with HMRC, and a few hints from this forum you appear to have ticked the relevant boxes for a compliant and neatly wound up estate, and given HMRC no reason to question your compliance efforts.

jem16

https://forums.moneysavingexpert.com/discussion/comment/82134980#Comment_82134980

Yes I did and thanks to you for that and a few other pointers, I hopefully got it all correct.

Still not 100% sure on the income tax side for the R185s but I’m as sure as I can be. I’ve reported it as has my Canadian son. Just need to get the 2 here in the UK to do so but they’ve been reminded. I can do no more.

It’s been an education and whilst the IHT side was clear, the income tax side with a DOV wasn’t. I hope the OP gets it sorted.

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/82134999#Comment_82134999

Seems you have fulfilled your duty in circulating the R185s to your beneficiares and telling them of their reporting obligations.

No HMRC expectation that you 'strong arm' the beneficiares to comply, eventhough HMRC have no mechanism themselves to determine who have actually been in receipt of an estate R185.

Contrast the position with regard to discretionary trust income distributions, where the discretionary trustees are required to name on the SA900 tax return the beneficiaries who received a distribution (page 8 of 2026 return).

No such reporting requiring for estate executors submitting an SA 900, although perhaps it could be argued there should be. Of course where a simple estate tax reporting letter is in point (avoiding SA900), HMRC would additionally need to ask for income beneficiaries to be named.

On reflection one wonders why HMRC shows so little interest in keeping track of estate income beneficiaries, compared to the significantly smaller pool of discretionary trust beneficiaries.