Deed of Variation re: IIP

Trusts Discussion
1

It is my understanding that you cannot vary a Life Interest trust by a Deed of Variation. Further, my understanding is that if one is brought to an end by the life tenant during their lifetime, then it would be a PET by the life tenant. Is this correct?

I am dealing with an estate where an aunt has died. The Aunt’s Will contains the following clause:-

  1. I GIVE free of tax my one-half share in the property 123 The Street aforesaid or whatever interest I have in such other freehold or leasehold property owned jointly by myself and my sister at which I reside at the date of my death (hereinafter called “the Property” ) to my Trustees upon the following Trusts
    (a) UPON TRUST to sell subject to the provisions of sub clause © or retain the same or any part thereof for so long as my Trustees shall in their absolute discretion decide without being liable for loss
    (b) after the death of my sister the Property shall be held by my Trustees UPON TRUST absolutely and equally between my said niece A my niece B and my niece C but if any of them should die then on the same Trusts as declared in clause 3 hereof
    © I DIRECT that during the lifetime of my sister no steps shall be taken by my Trustees to sell the Property or to realise my interest therein or to obtain any rents or profits without the consent of my sister and that until a sale my Trustees shall permit my sister to use and enjoy the same for so long as she shall so desire but upon the terms that she shall pay all outgoings payable in respect thereof and keep the Property and the buildings thereon in reasonable repair and condition and adequately insured under comprehensive cover
    (d) if my sister shall at any time request my Trustees to join in selling the Property my Trustees shall do so and at any time thereafter and at the like request of my sister shall apply all or some part according to the request of my sister of the net proceeds of sale representing my interest in the Property towards the purchase of another freehold or ·leasehold property or a share therein selected by her for use as her residence such acquired asset or share to be held upon the Trusts for the benefit of my sister corresponding in all respects with the Trusts hereinbefore declared

A DoV was drawn up by another Solicitor firm purporting to vary the life interest. The DoV simply deletes the above clause and instead gifts the property to A, B and C. Is this permitted?

The property was previously held by mother and aunt as TiC. The property is now in the Mother’s sole name, but the TiC restriction remains.

Mother has now died.

Any guidance would be greatly appreciated.

Martyn Dixon
Harold Bell & Co.

2

Several years ago, the Technical Team at what was then the Capital Taxes Office decided that a life interest could not be written out by deed of variation after the life tenant’s death citing “the Real World”. However, both HMRC and tax payers benefit from many aspects of taxation where “the Real World” is suspended in much the same way. Before expressing this “new” view, for many years during which the CTO had repaid IHT following the execution of such deeds.

The CTO’s view was challenged at the time and many (including me) believe it is just wrong. Whilst the CTO challenged taxpayers to take the matter to the courts, no cases were identified where the taxpayer felt the amount at stake was worth the cost and trouble of taking up the challenge.

However, the question posed relates to a deed of variation extinguishing the life interest whilst the life tenant is still alive. I believe that such deeds are effective and, to my knowledge, their effectiveness has not been challenged by HMRC.

Paul Saunders