Malcolm Finney examines an often-misunderstood aspect of deeds of variation.
Deeds of variation (DoVs) are often used to mitigate an inheritance tax (IHT) charge on a deceased’s estate on death. They may also be used for a non-tax reason such as redistributing part of the deceased’s estate for family reasons.
The relevant legislation is contained in IHTA 1984, s 142 (and TCGA 1992, s 62 for capital gains tax (CGT) purposes).
Inheritance tax
The essence of a DoV is a re-direction of an inheritance arising under a will by a beneficiary (‘the redirecting beneficiary’) to another person (‘the recipient’), be that recipient an individual, company or trustee. Such a re-direction would normally give rise to either a chargeable lifetime transfer or a potentially exempt transfer on the part of the redirecting beneficiary.
However, the effect of s 142 is that
