Deed of Variation - Foreign Estate, Beneficiary in England

Deceased is Canadian (British Columbia) and all assets in Canada. Canadian probate granted, and estate due to a UK beneficiary. Any tax issues for the estate have been dealt with, and money paid to UK beneficiary - c.GBP1m.

Beneficiary wishes to redirect this to his family for his own tax planning purposes.

My question is - do the reading back provisions apply where the beneficiary enters into a deed of variation of a Will proved in another jurisdiction, and where the property subject to the variation has come from that jurisdiction? There will be no tax consequences in Canada, as far as I am aware, as estates are charged to capital gains, rather than IHT (or an equivalent ‘estates tax’).

Thanks in advance

Damian Lines
Rubin Lewis O’Brien

In short, yes a DoV can be effected.

As to whether this is possible it is the personal law of the beneficiary (ie English law assuming English domiciled) that is relevant not that of the deceased testator.

Malcolm Finney

As I thought, but I am very grateful for your assistance.

Damian Lines
Rubin Lewis O’Brien

I am not convinced that it is possible to get the IHT advantages of a
deed of variation in these circumstances.

Section142 applies where any of the dispositions of the property
comprised in the deceased’s estate are varied. But excluded property is
not comprised in the deceased’s estate for IHT purposes (Section
5(1)(b)) and, of course, property situated outside the UK and
beneficially owned by someone not domiciled within the UK is excluded

So, it seems to me, that a deed of variation involving property situated
in Canada and beneficially owned by someone domiciled within Canada
cannot benefit from the deeming provisions of Section 142. But it would
be interesting to hear what the attitude of HMRC is from anyone who has
done this in practice.

Michael Dew

s142(5) IHTA specifically provides that “the property comprised in a person’s estate” (which is what s142(1) says the reading back provisions apply to) includes “excluded property”.

Paul Davidoff
Moon Beever

An instrument of variation containing the appropriate declarations is effective for UK inheritance tax, and limited UK CGT purposes, regardless of the nationality or domicile of the beneficiary entering into the variation, or the nationality or domicile of the deceased, or the location of the assets which are intended to be the subject of the variation.

However …

· This does not affect the liability of the estate to tax outside of the UK;

· May create additional tax liabilities (i) in the jurisdiction in which the assets are located; and (ii) in the jurisdiction in which the deceased was a national or domiciled if, by then, the estate had not been fully administered;

· Depending on the legal requirements in the jurisdiction in which affected assets are located, the variation might be ineffective to give the new beneficiaries under the variation any right to those assets.

If possible, I would always recommend that the assets be transferred into the UK before any variation is made, as it is then only necessary to consider the law within the UK.

If the assets cannot be transferred into the UK, or it is intended to vary the disposition of assets not yet distributed from the estate, any proposal should be checked with appropriate advisers in the jurisdiction(s) in question to ensure there will be no surprises.

Whilst I understand that a deed of variation in the “usual” form will normally be acceptable as a valid instruction to the executors of a Canadian estate, it would not be acceptable in other jurisdictions.

Paul Saunders

Thanks: I should have read to the end!

Michael Dew

With respect to Paul’s opening paragraph it implicitly assumes that the personal law of the re-directing beneficiary would permit such redirection. If it would not permit such a redirection then IHTA 1984 s142 would be inapplicable.

S142(1) provides “Where …(a) any of the dispositions …of the property comprised in his estate …are varied…”. It is thus necessary under the relevant law of the beneficiary that he/she is permitted a variation of the property received.

Malcolm Finney

Malcolm raises a good point.

If the redirecting beneficiary, for whatever reason, is not legally able to vary the legacy, the executor/administrator of the estate may be liable to satisfy the original gift despite dealing of it in accordance with the terms of any such variation.

If IHT is repaid by HMRC as a result of the variation, though, the executor/administrator (PR) should not take comfort from that, as HMRC has issued refunds of IHT without raising any questions where void legacies (e.g. the gift varied was to a witness to the will) have been “varied”. HMRC regularly asserts that it does not give legal advice and so its actions cannot be relied upon as a defence if a legacy is “incorrectly” paid away following a purported variation - one reason why a PR should normally look to receive legal advice from the relevant jurisdictions when a variation involving non-UK elements is under discussion.

Paul Saunders