21 August 2020
There are many reasons why this would be helpful, but usually a Will is varied to reduce the payment of Inheritance Tax.
Inheritance Tax is paid if a person's estate falls above the available tax-free amount on their death.
Example 1: To utilise Spouse Exemption
Sometimes the provisions under a Will are varied to give the whole Estate to the surviving spouse or civil partner. This is because there is no Inheritance Tax payable on transfers between spouses/ civil partners.
Mr Aldridge made a Will leaving his house in Bournemouth valued at £600,000 to his two children. On his death the Estate would pay £40,000 in Inheritance Tax. However if his children varied the Will so that the house was gifted instead to his widow Mrs Aldridge; no Inheritance Tax would be paid at that time.
Example 2: Skipping a generation
Frequently people receive an inheritance which increases their own Estate to the point that Inheritance Tax will become due on their own death.
Mrs Aldridge has an Estate worth £500,000. Her mother dies and under her Will, Mrs Aldridge receives her late mother’s Estate worth £200,000. No Inheritance Tax is paid on her late mother’s Estate (as it is below the Inheritance Tax threshold). Mrs Aldridge’s Estate has now increased to £700,000. When Mrs Aldridge dies; her own children inherit from her but Inheritance Tax of £80,000 is now due on her estate.
By contrast, if Mrs Aldridge varied her late mother’s Will to pay the inheritance directly to her children instead, her estate would be “skipped”. The Deed would ensure that the grandchildren were treated as receiving the inheritance directly from their grandmother. There would be no lifetime gift by Mrs Aldridge and therefore no Inheritance Tax consequences to her own Estate. Mrs Aldridge’s Estate would not exceed the Inheritance Tax limit on her own death. Therefore there would no Inheritance tax due.
Example 3: To provide an Inheritance
Ms Brownlee dies without making a Will. She lived with her partner Mr Aldridge in Poole. They each own a half share in the property as Tenants in Common. Ms Brownlee’s family learn that Mr Aldridge will not automatically inherit because they were not married and she forgot to make a Will. So they sign a Deed of Variation gifting him Ms Brownlee’s share of their property.
Conditions
To carry out the variation successfully there are several conditions:-
You need to think carefully about whether the Deed of Variation should have effect for both Inheritance Tax and Capital Gains Tax purposes. This means that the variation shall take effect as though it was made by the deceased. The new Beneficiaries will be treated as though they received the inheritance directly from the deceased on their death and at the date of death value.
If you would like advice on varying an inheritance please contact our expert Wills, Trust and Probate lawyers based at our Bournemouth and Christchurch offices via our website www.absolicitors.com or by calling the numbers below:
Moordown - 01202 527008
Lansdowne - 01202 294411
Highcliffe - 01425 282150
Please note, this is not legal advice. It is intended to provide information of general interest about current legal issues.
