#13760 - Post Death Arrangements & Precatory Trusts - Private Client

Post death arrangements and precatory trusts 2015 1) Writing back provisions - Variation of a will What is it? A direction from a beneficiary, to the PRs to transfer property that the beneficiary is entitled to under the will or intestacy, to another person Considerations for variations 1) A variation is possible after acceptance 2) A variation can be made in respect of part of an inherited gift 3) The original beneficiary controls destination of property Requirements for a variation 1) The variation must be in writing - s.142(1) IHTA 2) The variation must be made within 2 years of the deceased's death - s.142(1) IHTA 3) It must not be made for consideration in money or money's worth - s.142(3) 4) The instrument in writing making the variation must contain a statement from the beneficiary that they intend s.142(1) IHTA to apply to the variation a) Where the variation results in extra tax being payable the PRs must also make such a statement. b) The PRs can only refer to make the statement if insufficient assets are held by them to discharge the additional tax - s.142(2) IHTA 5) If additional tax is payable, a copy of the instrument must be delivered by the PRs to HMRC IHT consequences of a variation Normally a? This would be deemed a gift (PET) by the beneficiary to the new recipient s.142 satisfied a? The transfer will be read back to the date of death and inheritance tax will be payable on the death estate as if the deceased had left his property to the new beneficiary CGT consequences of a variation Normally a? This would be deemed a disposal and could give rise to a CGT liability for the original beneficiary s.62(6) Taxation of Chargeable Gains Act 1992 (same conditions as under s.142 IHTA) satisfied a? The variation will not be treated as a disposal and the variation will be read back to the date of death. There is no CGT on death 2) Writing back provisions - Disclaimers Income tax consequences of a variation s.142 IHTA / s.62(6) TCGA satisfied a? Income received by the original beneficiary before the variation was made will be taxed as part of their income What is it? A disclaimer is a refusal to accept property to which a beneficiary is entitled either under the intestacy rules or under the terms of a will Considerations for disclaimers 1) A beneficiary can only disclaim before acceptance 2) A beneficiary can only disclaim the whole gift 3) A disclaimer of rights under a will does not act as a disclaimer of intestacy rights 4) The property passes as if the gift to the original beneficiary had failed IHT consequences of a variation The transfer will be read back to the date of death and inheritance tax will be payable on the death estate as if the deceased had left his property to the new beneficiary - s.142(1) CGT consequences of a variation The variation will not be treated as a disposal and the variation will be read back to the date of death. There is no CGT on death. - s.62(6) TCGA Income tax consequences of a variation The original beneficiary will not be liable to income tax as a disclaimer can only be made where the gift was not accepted