Settlement created by a Deed of Variation

I am trying to establish the tax position of a client who has presented documentation to me. His mother passed away less than two years ago and he was due to receive one third of the residue absolutely.

He has entered into a deed of variation and has varied his share of the residue into a settlement created by the DoV. All ok so far - the DoV contains the relevant statements so that the deceased is treated as the settlor for IHT and CGT purposes. I also understand that the son is the settlor for income tax purposes.

The settlement includes the son as a potential beneficiary. I understand from previous posts on this subject that makes him the settlor for income tax purposes. However, can someone please confirm whether, for IHT purposes, the trust fund will be in the son’s estate or not? I’ve had conflicting advice, some saying because he’s named as a potential beneficiary that makes it settlor interested for IHT purposes as well.

As the son is a ‘potential beneficiary’ is this part of a Discretionary Trust set up on the death of the mother with the father having an interest during his lifetime?

If this is the case, then the son is not the owner of anything until the spouse dies, but please clarify the information you have given.

Thank you for replying.

There is no father - the father predeceased. The son is a discretionary beneficiary of the settlement established by the deed of variation.

If the variation is accepted as valid under s.142 IHTA 1984, the deceased will be the settlor for IHT purposes, so that s.102 FA 1986 does not apply.

Please note, though, the that son is the settlor for both income tax and CGT purposes. S.62(6) TCGA 1992 applies only for the purposes of s.62. The deceased is not the settlor for CGT (See the House of Lords’ decision in Marshall v. Kerr)

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals