Deed of Variation Case Study
The People
JB was due to receive an inheritance from her mother of £500,000. Of this, she wished to make gifts totalling £150,000 to her children and grandchildren.
The Problem
If JB made the payments directly to her children and grandchildren and then died within 7 years of having made the gifts, the gifts would be bought back into consideration for Inheritance Tax (‘IHT’) purposes. The effect of this would be for the gifts to use the first part of the Inheritance Tax nil rate band available. Therefore, the remaining nil rate band available to her estate would be reduced by £150,000, resulting in an additional £60,000 IHT being payable.
The Solution
JB entered into a Deed of Variation varying the terms of her mother’s Will. The deed effectively redirected the gift of £150,000 that her mother had left to JB’s children and grandchildren. Even if JB were to die within 7 years, there would be no extra IHT payable as the gifts would be treated as having been made by JB’s mother.
Who to contact
Paul Tobias
Senior Partner, Head of Trusts & Investments
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