I have recently taken over a probate file where the beneficiaries of the estate were also equitable joint owners with the deceased to a particular property (deceased was not on the title). After the death they decided to gift part of the property to another beneficiary by way of a declaration of trust. They subsequently decided that a deed of variation would have been better and executed a DofV duplicating the provisions in the prior declaration.
They have asked me to advise on the IHT treatment and whether HMRC will consider the reading back effective in light of the prior declaration. I suspect that HMRC will go with the declaration but I would be very grateful for comments if anyone has come across this or anything like it before.
For a variation to be effective, there must be something for it to “bite” upon.
If the subject matter of the intended variation has already been gifted to the intended recipient, there is nothing for the variation to “bite” upon. s.142 IHTA 1984 cannot be applied retrospectively
If the surviving co-owners enter into the variation, they may find that the recipient has benefitted twice – once from the original gift and then from the variation. This would be especially so if the subject matter of the original gift had not specifically been identified as coming out of the share of the deceased co-owner.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
A DoV is simply a re-direction by a beneficiary of a gift under a will. Only one re-direction is possible wrt a particular item of property.
Here, the inheriting beneficiary has simply gifted their inherited interest by execution of a declaration of trust. This does not constitute a DoV under IHTA 1984 s142.
The inheriting beneficiary no longer has any interest in the inherited gift and thus there is no longer anything to re-direct.
Presumably, if the recipient of the property transferred by way of a declaration of trust disclaimed the gift then the original inheriting beneficiary would still own it and could then execute a valid DoV.
I refer to Malcolm’s closing comment in his post of 28 November.
To my mind, if the person receiving the gift was able to validly disclaim it, in doing so to enable it to be returned to them via a deed of variation seems to me to risk the disclaimer being invalid as being made for consideration (i.e. the making of the variation).
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Paul makes an interesting point re “consideration” wrt to my last post.
My suggestion (without too much if any thought!) was because in Vaughan-Jones v HMRC [2015] EWHC 1086 (Ch), although the point I believe was not decided, counsel for the taxpayer raised the matter as to what precisely is meant by “consideration” for s142 purposes:
“Finally, Mr Oughton addressed me on the additional point raised by HMRC as to the potential application of section 142(3) of the Inheritance Tax Act. Mr Oughton has submitted that the case cited of Lau v Revenue & Customs Commissioners is a decision on its own particular facts, which establishes no general proposition of law beyond the fact that the onus of proof on the issue of consideration rests with the taxpayer. Mr Oughton has taken me in detail through the decision, citing paragraphs 21, 35 to 36, and 46 to 47. He submits that the expression ““any consideration in money or money’'s worth”” is a technical expression which requires a bargain which is sufficiently definite. He submits that it does not include a generalised intention to give sums of an indefinite amount at an indefinite time in the future, which gives rise to no legally enforceable obligation, and where the widow could, without adverse consequences to herself, change her mind at any time”.
I’m unaware if this matter has been decided in any later cases.