If Probate is not required to administer an estate, is it necessary to prove a Will for a Deed of Variation to be valid, or can the executed deed sit with the Will, in the same way a codicil might?
Looking forward to your comments.
I understand that Deeds of Variation sit independent of the probate. The only reason you would want a Grant if it is not required, is if the Will may be challenged, or if there are concerns as to validity. Often DoV are executed prior to the probate application, particularly when tax is at stake.
Thank you Haroon. As you say, it is not uncommon for DoV to be executed prior to grant if say, a variation of the dispositions of the Will is to charity and impacts upon the IHT position.
Agreed DOV before grant of probate is fine. A point to watch is that the cost of the DOV must not be paid by the estate as HMRC will contend that it is consideration
A D of V is usually recorded by way of memorandum on the grant of probate (not sure if you can do it on these new style grants) so I would think that implies that a grant of probate is necessary. Also if retrospectively severing a joint tenancy then the half share falls back into the estate of the deceased and you need a grant of probate to deal with it
The marking of a variation on the grant is not mandatory. It can be helpful, yes, but I suspect that for several years it is a nicety that has lapsed.
With regard to the notional severance of joint property by a variation, nothing passes into the estate of the deceased co-holder so no grant is required to deal with it. In such situations, the surviving co-holder(s) by the variation effectively declare a trust over the property, redirecting the deceased co-owner’s former share to the new beneficiaries. Legal title remains with the surviving co-owner(s) and the beneficial entitlement passes under the variation (which is a gift by the surviving co-owner(s) treated retrospectively only for IHT purposes and some CGT purposes provided, of course, that the appropriate declarations are included within the document).
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
I would be grateful for authority on this point please e.g. pointer to HMRC manual or other?
The only “authority” I have seen is in Trust Taxation and Estate Planning (Chamberlain and Whitehouse 4th edition paragraph 45.16 “The person making the deed of variation should pay the legal costs incurred, not the personal representatives nor the donee, and there must be no understanding that the donee beneficiary will give the property back to the donor at a later date”
I did check the IHTM but could not see any express guidance on the point. One of my pals has been to various lectures on this topic where the point has been stated but I have not seen anything written other than the above. Also counsel made the point on one of my cases a couple of year ago. I will ask him if he has specific authority on the point.
Thank you - and look forward to hearing further if Counsel has authority as I am not sure I understand the reasoning on it (or legislative authority) as it is not “consideration” for the variation in the way other examples are
If I agree with X that I should do something in return for X paying my costs are you saying that this cannot conceivably be “consideration”?
Jack Harper
I can see that it could be consideration, but not “from outside of the estate” if it is a cost borne by the estate. My understanding that consideration from “within” the estate does not present a problem.
With reference to IHTA 1984 s 142 many writers refer to “extraneous consideration”. The section itself makes no such reference. Subsection (3) provides:
“ Subsection (1) above shall not apply to a variation … made for any consideration in money or money’s worth other than consideration consisting of the making, in respect of another of the dispositions, of a variation …. to which that subsection applies”.
This seems to me to be an exhaustive statement. The only acceptable consideration is simply that of the making of another variation. Any other form of consideration, of whatever nature (whether extraneous or otherwise), would preclude the “original” variation from falling within the section.
However, I would suggest that often little attention is given to what precisely is meant by “consideration”. If X executes a DoV in favour of Y and Y makes a gift to X (out of Y’s own resources; eg £100) it does not automatically follow that X made the DoV for consideration however it may appear on the surface. I suggest that HMRC would need to demonstrate (strictly the onus would be on the taxpayer) that had Y not either given the £100 or agreed to so do that X would not have executed the DoV in Y’s favour. A failure to “link” the DoV with the £100 would mean the DoV satisfied s 142.
In essence the matter is one of evidence.
In the oft quoted case of Mrs M Lau [2009] it was seemingly clear that the evidence supported HMRC’s contention that the children agreed to execute a DoV in her favour on the understanding she would make gifts back to them (which she did within 12 months).
In Vaughan-Jones [2015] counsel for the taxpayer at para 51 submitted:
“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.
[my emphasis].
The court, however, did not (it seems) consider or rule on whether subsection 142(3) was or was not satisfied.
Malcolm Finney