Foreign domiciled spouse deed of variation and retrospective sevarance

British couple (H & W) emigrated to Malta years ago where they resided and are tax domiciled. Wife died Jan 2022. Both own a holiday property in England as joint tenants value £300k as only UK asset other than nominal UK joint bank account.
H wishes to pass English property title to son outright

  1. Can survivor (H) execute a UK tax relevant deed of variation of W’s English property share with a retrospective severance in favour of their similar British born now non-UK dom son?
  2. Would this be a UK CGT disposal issue of W’s share and /or H’s share for H or for son as non doms?

Roger Baldwin

Even where both are non-UK domicilliaries, they can execute a deed of variation in respect of assets situated in the UK and claim the benefits of s.142 IHTA 1984 and s.62(6) TCGA 1992.

Accordingly, so far as the UK is concerned, yes, the husband can effect a notional severance of the joint ownership of the holiday home and gift his late wife’s nominal share to the son without giving rise to a UK CGT liability on the gift.

However, the situation also needs to be looked at from the Maltese standpoint. Neither s.142 IHTA 1984 nor s.62(6) TCGA 1992 have any relevance to Maltese tax law. Accordingly, it may well be taxed as any other gift made by a Maltese tax resident. It is therefore important that the husband takes tax advice from someone conversant with Maltese tax law. It may be that Malta permits something similar in effect to a deed of variation and, if so, it will be important that any such deed complies with the requirements of both UK law and Maltese law. If it doesn’t, the client could discover that they have an unexpected tax bill.

If there is no Maltese equivalent to the UK deed of variation, then at least the UK variation may avoid a potential UK CGT liability (if nothing else)

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

The non-domicile status of H and W does not preclude H taking advantage of IHTA 1984 s 142 and TCGA 1992 s 62. In addition, a post-death severance by H for these purposes is also possible.

Reading back for IHT may cause an IHT charge on the estate of W as the inter-spouse exemption will no longer apply. In such as case the PRs will need to be parties to any DoV.

Reading back for CGT may not be as tax efficient as not electing for reading back depending upon the value of the property at date of death and date of executing the DoV.

Also note the possible implications in Malta as set out by Paul in his post.

Malcolm Finney

I am a little confused by Malcolm’s reply, on 2 grounds –

  • If both H and W are non-UK domiciled (neither actual nor deemed), surely the inter-spouse exemption applies. s.18 IHTA 1984 only restricts the exemption if the deceased/donor spouse is a UK domiciliary and the surviving/donee spouse is non-UK domiciled.
  • If s.62(6) TCGA 1992 applies to the variation, there is no disposal for which a CGT return is required to be submitted to HMRC within the 60 day reporting window, whereas if s.62(6) is not invoked a CGT charge might arise, and a CGT return required. Clearly, it would be necessary to consider the extent to which a gain chargeable to UK CGT might arise (and the extent to which it might affect any liability to taxes ion Malta)

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

Re Paul’s post:

  1. Following execution of a DoV post severance in favour of their son and IHT reading back, the deceased is treated as having left the interest in the property to the son and not surviving spouse and hence IHT (subject to NRB) may arise on the deceased’s estate.

  2. If the value of the deceased’s interest between date of death and date of executing the DoV has increased less than the surviving spouses annual exempt amount for CGT it may be “better” to note elect for CGT reading back; otherwise reading back probably preferable.

Malcolm Finney