Deed of Variation - inheritance tax refund

I was wondering if anyone could help me with this question.

I have a client who under the terms of her mother’s hand written Will was given a property. During the course of the administration the client signs a deed of variation in which she split the proceeds of sale between a number of family members and gives £20,000 to a charity. I have subsequently submitted a Corrective Account to HMRC to reclaim the inheritance tax paid on the £20,000 now given to charity.

The question is who is entitled to this inheritance tax refund? Is it to be considered as part of the residuary estate and so split between the residuary beneficiaries or is it considered part of the gift of the property and so due back wholly to the beneficiary who made the gift to the charity?

The Will is silent on the payment of inheritance tax.

Inheritance tax is a testamentary expense. Accordingly, unless the deed provided otherwise or the property was given subject to tax, any refund of IHT accrues to residue.

In order to obtain the refund arising from the charitable gift under the variation, you will need to demonstrate compliance with s.142(3A) IHTA 1984.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

If you are a subscriber to Taxation magazine, I and others responded to a similar readers’ forum question at the end of January