If you have inherited from an estate and do not need the money, you may wish to consider putting in place a deed of variation. Our 6th Tax Tip gives a brief overview of deeds of variation and how they can be useful tax planning tools.
If you already have an estate valued at over the Nil Rate Band (£325,000) and other allowances, and you inherit funds from an estate, you may not want or need to keep the gift.
An outright gift of the inheritance can be problematic if the gift is not survived by 7 years. A lifetime gift of anything over your available lifetime allowances will be a Potentially Exempt Transfer (PET) (please see Tax Tip 5 for more information on PETs).
You can disclaim an inheritance but in doing so you retain no control over where funds go. Instead of passing funds to a beneficiary of your choice, the funds would fall back into the estate to be divided between the residuary beneficiaries in the will.
If you are concerned about the effects of making a PET or wish to direct your inheritance tax to a particular beneficiary, then a deed of variation can be extremely useful.
A deed of variation allows you to nominate the beneficiary or beneficiaries who will receive your inheritance instead of you. You are also able to gift your inheritance into a discretionary trust of which you can be a potential beneficiary.
The value of the inheritance that you are varying is treat for Inheritance Tax and Capital Gains Tax purposes as being gifted to the beneficiary or trust from the deceased rather than from your estate. This means that you are not making a PET.
If you are the beneficiary of an estate and would like to know more about putting in place a deed of variation please get in touch.
These notes have been prepared for the purpose of articles only. They should not be regarded as a substitute for taking legal advice.