Predicting the value of your Estate isn’t easy, not least because you don’t when you will die.
After someone dies it is possible for the beneficiaries to change the Will using a Deed of Variation, there are free examples on the internet for example Deed of Variation UK Template – Make Your Free Deed of Variation (rocketlawyer.com)
Note that Beneficiaries under 18 can’t enter into Deeds of Variation.
HMRC also provide a Checklist IOV2 Instrument of Variation checklist (publishing.service.gov.uk)
You can’t re-write a Will but a Deed of Variation will change the content of it and the Inheritance Tax (IHT) payable.
For example by making a donation to charity.
Where a gift is made to a Charity its taken off the value of the estate and as such will reduce IHT, it could even reduce the rate of IHT on the whole estate currently by 4% (40% to 36%), click here for HMRC reduced rate calculator.
In summary, your donation will either:
- be taken off the value of your estate before Inheritance Tax is calculated
- reduce your Inheritance Tax rate, if 10% or more of your estate is left to charity
You can donate:
- a fixed amount
- an item
- what’s left after other gifts have been given out
The Deed of Variation can be prepared before or after the Grant of Probate but generally in must be made within 2 years of the date of death.
FA 2010 definition of charity
Under Sch 6 Para 1 FA 2010 a charity is a body of persons or trust that:
- is established for ‘charitable purposes’ only
- meets the jurisdiction condition (i.e. is subject to the jurisdiction of a relevant UK court or the courts of a relevant territory)
- meets the registration condition (i.e. has complied with any requirement under the applicable law to be registered), and
- meets the management condition (i.e. the managers are fit and proper persons).
This definition of charity allows charities of relevant territories to qualify as charities for the purposes of UK legislation (provided the conditions above are met). Relevant territories are those in EU Member States, Iceland and Norway
Other reasons why you might need a Deed of Variation
- Equalising distributions between the Beneficiaries
- Including beneficiaries such as a grandchild born after the Will was created
- Including someone who the Rules of Intestacy do not apply to, such as a partner or step-child
- Resolving uncertainty in the Will
Liability of personal representatives for inheritance tax
- Section 4, Inheritance Tax Act 1984 (“IHTA”) provides that inheritance tax is charged on the death of an individual as if, immediately before the death, the individual had made a transfer of value equal to the value of his estate immediately before his death.
- Section 200, IHTA provides that, with limited exceptions the deceased’s personal representatives are liable for the inheritance tax arising on the deemed transfer on death.
- Section 216, IHTA requires the personal representatives to deliver an inheritance tax return and pay any inheritance tax due before the court issues the grant of representation to them. However, where the estate includes land, the inheritance tax arising in respect of that land can be paid in ten equal annual instalments (s227 IHTA) – save that if the land is sold, any unpaid instalments (together with accrued interest) then become immediately payable.
Harris v HMRC  UKFTT 204 (TC)
1. Mr Harris was appointed as personal representative of the late Helena McDonald by letters of administration issued in the High Court on 12 June 2013.
2. On 28 April 2013, Mr Harris filed IHT400 – an inheritance tax account – with HMRC. On 16 April 2014, HMRC opened an enquiry into the account and on 7 October 2015 issued an inheritance tax determination on the basis that the value transferred on Helena McDonald’s death was £1,178,196.92 and that the inheritance tax payable was £341,278.76.
HMRC pursued payment of £341,278, Mr Harris said he didn’t have the money because he had distributed the estate mainly to the deceased brother, Mr Harris believed the the beneficiary would pay the tax.
The beneficiary then moved to Barbados and would not respond to Mr Harris.
Mr Harris was unsuccessful in his defence if ignorance of obligations or inability to pay.
He was found personally liable.
HMRC can be slow in dealing with IHT400 returns and pressure can be significant from beneficiaries requesting distributions. There is a facility (in IHTA 1984, s239(2) to apply to HMRC for a ‘clearance certificate’ (form IHT30) if the personal representatives believe that all assets and liabilities have been reported to HMRC. If HMRC gives clearance, it normally discharges taxpayers from further liability.
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