Deed of variation and section 143 IHTA

In a will it possible to leave a sum subject to a precatory trust to which s 143 IHTS will apply. I understand that if the legatee does not otherwise benefit under the will, he or she can give the funds to charity within two years under the gift aid scheme with the legatee obtaining higher rate tax relief and the charity recovering the basic rate. Is that the case?
Is it possible for a similar precatory trust to be included in a deed of variation by a residuary beneficiary giving a legacy subject to a precatory trust to a legatee who does not benefit otherwise under the will or the deed of variation, with the same effect for gift aid purposes?

Susan Midha
Inheritax Limited

I recall that some years ago, HMRC curtailed the ability to claim both s.143 relief and gift aid on the same monies – it was one or other and not both.

If that is correct, then the same will apply to any attempt to re-create an arrangement by an instrument of variation. I also wonder if the creation of such an arrangement via a variation might be seen by HMRC as an attempt to manufacture a tax advantage.

Paul Saunders

It is possible for a legatee to obtain a gift aid deduction and any IHT on the testator’s estate to be reduced where a DoV is adopted.

However, it would seem that the key point to note is that gift aid relief requires the donor not to benefit due to having made the gift. St Dunstan’s v Major [1997] and RM Harris. v HMRC [2010] are two cases which HMRC won by successfully arguing that in those cases the donor did receive a benefit and gift aid was denied (reduction in the IHT on the testator’s estate accrued for the residuary beneficiary’s benefit who had made the gift).

Ss 142 and 144 can be used in combination so is it not the case ss 142 and 143 can similarly be twinned?

Malcolm Finney

This point is actually addressed in our book, Taxation of Charities and Non-profit Organisations (Kessler, Wong, Birkbeck). See chapter 28 on ‘Obtaining IT and IHT Reliefs on Gifts by Will or IoV’. See also the St Dunstan’s case.

The short answer is that no, you can’t get both, as the s143 relief constitutes a benefit which rules out the IT relief. This would also apply for a variation. There are sometimes ways to get to a similar result, however - for example by using Qualifying Investment Donation Relief.

Ross Birkbeck
Old Square Tax Chambers

Ross, I have looked at Kessler et al’s book to which you refer in your post.

Unless I have misunderstood it, the book seems to confirm that the double dip arrangement (re s143) is in principle effective although in your post you say otherwise?

Malcolm Finney

Ross, any chance you could comment on my post following yours?

Malcolm Finney