I am dealing with an Intestacy where the deceased died a year ago and the estate is well within the NRBx2. About three months ago, the deceased’s daughter, the only person entitled to the estate executed a deed of variation, giving her son, who is over the age of 18, a payment of £20,000 from the cash in the estate. The deceased’s home has now been put up for sale and an offer which has been accepted results in a gain of £35,000 over the probate value which was made by a chartered surveyor, who stands by his valuation, – it is just that the purchaser very much wanted the property, and there was considerable interest from others. To minimise or indeed extinguish any CGT liability, I am now looking at drawing up a DOV introducing a notional Will. The intention is that in that Will I will merely state, the following:-
I A of XYZ Declare this to be my last Will
1 I give to my daughter B a one third share of my property XYZ absolutely
2 I give to my grandson C a one third share of my property XYZ absolutely
I would end the Notional Will at this point and as I see it, the sale of the property by the daughter as administrator would be for herself and her son in respect of one third share each and one third for the estate, thus meaning that all three would have the gain covered by their CGT allowances. I do not see there is a need to refer to the previous deed of variation which gave the grandson, the legacy of £20,000. The DOV Will of course include elections for IHT and CGT.
As we know, DOVs are a fiction. Will it work or am I missing something?
I don’t understand the “need” for a notional will in any variation, let alone an intestacy.
I have seen more problems with variations where a substituted/notional will have been used, than in any other form. Amongst other issues, it tends to reinforce the belief that a variation actually changes the will itself. But I won’t go on about the various issues that arise. In this instance, there would be a strong argument for including within the notional will reference to the £20,000 gift to the grandson by the first variation, despite the potential for that causing confusion.
To my mind, I would look to the variation merely including within the operative clause a statement along the lines of the daughter varying the dispositions of the estate upon intestacy as though the intestate had specifically gifted a one-third share of the property to each of the daughter and the grandson.
Within the recitals, the new variation should include reference to the previous variation.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Have you considered a claim under s 191 to substitute the sale proceeds for the PV? HMRC relying on Stonor v CIR [2201] SpC 288 say that this can’t be done, but in Stonor the transfers were exempt where as here they are chargeable.
Otherwise ensure the DoV is executed and any appropriation/ascent is made before contracts are exchanged.
Paul, I must confess that I have never been comfortable with notional wills, particularly in intestacies, but it seems to be what is suggested in various precedents. Nevertheless, I agree with you that, in this case, it would be more sensible to incorporate the provision in the operative clause and as you suggest mention the previous variation in the recitals.
Duncan, not sure if I want to go down the section 191 route, particularly with the delays at HMRC offices.
The deceased’s daughter is to execute a DoV under which her son and grandson are to benefit as to 1/3rd each of the property inherited with the deceased’s daughter retaining 1/3rd with eating back for IHT and CGT purposes.
Is the deceased’s daughter’s 1/3rd interest in the property assented to her pre sale or does it on sale remain as part of the deceased’s estate?
I’m not sure why Paul suggests the earlier DoV needs to be referred to in the second DoV?
Malcolm the daughter who is entitled to the whole estate is executing the deed so that 1/3 is deemed to have been inherited by her and 1/3 is deemed to be inherited by the daughter’s son. The remaining 1/3 share will pass under the intestate, thus providing 3 CGT allowances. I appreciate that in effect the daughter will end up with 2/3 but although the whole thing is a fiction in reality, my understanding is that it works for IHT & CGT.
Patrick, I was just seeking to ascertain whether one of the sales is by the estate, one by the daughter B and one by the grandson C or all three sales are by the individual beneficiaries.
Malcolm Daughter B the administratrix will be selling on behalf of herself, her son and the estate. I plan to get her and her son to sign requests for their shares to be sold by the administratrix.
I believe the one-third shares should be formally appropriated to the daughter and grandchild before the sale. Whilst not a specific devise, I believe the effect of the CGT declaration will be to enable the doctrine of relation back to apply for CGT purposes. Without an appropriation, the sale is more likely to be treated as being made only out of the estate.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Hi Patrick, it’s always good to know when you’re on the same page as others.
I wonder if any of those responsible for the precedents which incorporate a notional/substituted will might be willing to join in the discussion on their suitability?
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Thank you again Paul. I will as you suggest arrange for appropriations to the daughter and grandson to be executed by the daughter as administrator, and by her as beneficiary for her one, and by the daughter as administrator and the grandson for his one. There’s no point in taking any risks in this instance.
Yes, it would be interesting to learn from those advocating notional Wills why they feel this is advisable.
Sorry, but just struck me that the variation need only gift the one-third to the daughter’s son (and for it to be appropriated to him pre-sale).
The daughter cannot gift herself one-third – she need only appropriate it to herself (pre-sale) for it to be in her estate for CGT, leaving the remaining one-third in her mother’s estate for CGT purposes.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals