Discretionary Trust by Deed of Variation

Deceased died almost 2 years ago leaving estate of £700k including a house to her brother. Brother, living in this house, has sufficient resources of his own (falling within his own NRB) so executed a DOV a couple of months ago of the whole of his entitlement under his late sister’s Will in favour of a discretionary trust of which he, his niece and nephew and their issue, are beneficiaries. He has since died before assets have been transferred to the trustees.
Rather than constituting the trust and then winding it up, can the trustees appoint their rights under the DOV to discretionary beneficiaries using s144? Or does this have adverse tax consequences?
Alexandra Taylor
Botvyle Consultants

Yes, HMRC has previously confirmed that relief under s.144 IHTA can
validly be claimed on distributions made from a discretionary trust
created under s.142.

Paul Saunders

Thanks Paul. Just so I’m clear on this, if the trustees appoint their rights under the discretionary trust to the nephew and niece, and the trust does not come into existence, does the reading back under s144 mean it is as if these beneficiaries inherited under the Will of the original deceased (the sister) and the IHT position of her estate remains unchanged as both the original and varied beneficiaries are non-exempt?
Alexandra Taylor
Botvyle Consultants

You are correct for iht, but if the sister’s estate is ascertained for cgt purposes, then the trustees will be making a chargeable disposal, and as there is no iht charge, there is no hold over.

Simon Northcott