Deed of Variation – getting it wrong, (S142 IHTA)

Deed of Variation – getting it wrong | Withersworldwide.

Referring to the recent case of Vaughan-Jones v Vaughan-Joneswhere a deed of variation was effected in the estate of the husband.  The will of the husband had left assets both to the wife and also to the children.  The amounts left to the children exceeded the Nil Rate Band, and therefore an immediate IHT liability arose on the death.  The deed of variation was completed less than a week before the deadline (before the 2nd anniversary of death) but most importantly, failed to contain the election for Inheritance Tax which arguably was the whole point of the document.

The election for Inheritance Tax is the part of the document that enables, for Inheritance Tax purposes, the deed to be considered as if it was the wish of the deceased, rather than the wish of those who actually inherit.  To fail to include that election makes the document pretty useless – “ineffective”.  The reported case permitted the court to rectify this omission.

The Wither’s article reveals, however, that in the process of arguing the case, it was revealed that the deed of variation was not entered into freely – that the widow (to whom all was transferred so as to secure the 100% spousal relief) and children had participated in the deed in order that the widow would later give the assets back to the children.

A key part of the legistation permitting the election is that it cannot apply where there is any associated financial bargain (or “consideration”) with the election:

142Alteration of dispositions taking effect on death.

(1)Where within the period of two years after a person’s death—

(a)any of the dipositions (whether effected by will, under the law relating to intestacy or otherwise) of the property comprised in his estate immediately before his death are varied, or

(b)the benefit conferred by any of those dispositions is disclaimed,

by an instrument in writing made by the persons or any of the persons who benefit or would benefit under the dispositions, this Act shall apply as if the variation had been effected by the deceased or, as the case may be, the disclaimed benefit had never been conferred.

[F1(2)Subsection (1) above shall not apply to a variation unless the instrument contains a statement, made by all the relevant persons, to the effect that they intend the subsection to apply to the variation.

(2A)For the purposes of subsection (2) above the relevant persons are—

(a)the person or persons making the instrument, and

(b)where the variation results in additional tax being payable, the personal representatives.

Personal representatives may decline to make a statement under subsection (2) above only if no, or no sufficient, assets are held by them in that capacity for discharging the additional tax.]

(3)Subsection (1) above shall not apply to a variation or disclaimer made for any consideration in money or money’s worth other than consideration consisting of the making, in respect of another of the dispositions, of a variation or disclaimer to which that subsection applies.

(4)Where a variation to which subsection (1) above applies results in property being held in trust for a person for a period which ends not more than two years after the death, this Act shall apply as if the disposition of the property that takes effect at the end of the period had had effect from the beginning of the period; but this subsection shall not affect the application of this Act in relation to any distribution or application of property occurring before that disposition takes effect.

(5)For the purposes of subsection (1) above the property comprised in a person’s estate includes any excluded property but not any property to which he is treated as entitled by virtue of section 49(1) above [F2or section 102 of the Finance Act 1986].

(6)Subsection (1) above applies whether or not the administration of the estate is complete or the property concerned has been distributed in accordance with the original dispositions.

(7)In the application of subsection (4) above to Scotland, property which is subject to a proper liferent shall be deemed to be held in trust for the liferenter.

Finance Act 1986 Sch. 19, para. 24,with effect from 18March 1986. 


Developments in the courts from 2014 | STEP

Developments in the courts from 2014 | STEP.

This is lifted completely from the STEP pages written by Nicholas Le Poidevin QC TEP  (a Barrister at New Square Chambers) and Toby Graham TEP (a Partner at Farrer & Co)

The main interest right now for me is Marley -v- Rawlings, as I wrote about this a little while ago and it had such a bearing on  a case for rectification I was dealing with at the time.

It must be me – because I found a couple of lines in this to be truly amusing.  I wonder whether the writers are entertaining speakers?