I am dealing with a Deed of Variation in respect of the estate of R and would like to pick your brains as to whether my thoughts are correct.
R’s Will leaves everything to his wife (W) but there are a couple of properties which are being redirected under a DOV. R had a 50% beneficial interest in one of the properties in his own right and at the date of his death he also had a remainder interest in the other 50%. W wants to redirect all of this property to her daughter under the DOV.
As it happens the LT of the old Trust under which R’s remainder interest arose, died a couple of months after R.
My thinking is that the 50% remainder interest (as well as his own 50% interest) can be included in the DOV because the remainder interest was R’s at the date of his death. However, from an inheritance tax point of view the value of the remainder interest was not treated as R’s on his death (as it was treated as being in LT’s estate) and so the value under the DOV will also only be the 50% which he owned outright.
I think it is the death of the LT shortly after R that is making me question matters.
I need to make sure that the IHT position of the DOV is within R’s NRB, or advise the client that it will not be and that we may cause tax to be payable.
R’s remainder is “comprised in his estate” per s142 IHTA despite having no taxable value being excluded property for IHT.
You are moving property away from the spouse exemption and presumably have very much in mind that the chargeable estate as eventually revised will be within the NRB of R.
I fear you need to consider the bizarre and dubiously correct attitude of HMRC set out in the final words of IHTM35042. They stubbornly refuse to accept that a life interest can be re-directed if the variation is executed after the LT has died.
S.142 when reading back applies creates a statutory fiction. It is no more peculiar to re-direct the life interest of a dead LT than it is to re-direct a house after it has been sold and even after the sale proceeds have been distributed to and spent by a different beneficiary from the one who benefits under the variation.
So the big question is: can a variation within s142 re-direct a remainder which by the date of its execution has fallen into possession of the actual trust property? I consider that it can but then I regard HMRC’s stand on the life interest is what Mr Roy Keane would call “Nunsints!”.
I cannot discern any legal, rational, or policy justification for their objecting to a re-direction as you propose. However, IHTM35026 ominously comments on examples of possible variations that each may merit a referral to Technical. Of course you will not want that to happen after the variation has been executed. I hope you have enough time to ask them for a ruling in advance.
Following on from the initial question, I might as well ask for your view as to our interpretation of the Will and the remainder interest. I have set out the pertintent bits of the Will below.
We have treated (a) below as a remainder interest as it is an absolute gift to R - there is no mention of surviving the Testator or the LT. We would say likewise for (b) but this is not relevant to our deceased. In respect of (c) and the residuary trust fund, as this says that if any son shall predecease me or my said wife (LT) we are treating this as passing as to one-third to R’s children as he died before the LT.
Do you agree, or have any comments?
The Will of the person setting up the Trust gave the residuary estate:
“to the Trustees to pay the income or benefit of my residuary trust fund to my wife (LT) …”
"On the decease of my said wife or in case she shall predecease me then the following provisions shall take effect:
(a) I give devise and bequeath free of tax all that my share or interest in the property known as A to my son R for his own use absolutely
(b) I give devise and bequeath free of tax all that my share or interest in the property known as B to be divided equally between my sons X and Y
(c) I give devise and bequeath all the residue of my residuary trust fund to be divided equally between my three sons (R X and Y) after payment of any capital transfer tax and disbursements provided always that in case any son shall predecease me or my said wife his share shall pass to his issue and equally if more than one or in case there shall be no issue the share of interest of the deceased son shall be divided equally between my surviving sons or their issue"