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Can I give my inheritance to someone else without paying Inheritance Tax?

It is a little known fact that you can vary a person’s Will after they have died. You can do this via a document called a Deed of Variation.

There are many reasons why this would be helpful, but usually a Will is varied to reduce the payment of Inheritance Tax.

Sometimes the provisions under a Will are varied to give the whole Estate to the surviving spouse or civil partner. This is because there is no Inheritance Tax payable on transfers between spouses/ civil partners.

Example 1: Spouse Exemption

Mr Aldridge made a Will leaving his house in Bournemouth valued at £500,000 to his two children.  On his death the Estate would pay £55,000 in Inheritance Tax. However if his children varied the Will so that the house was gifted instead to his widow Mrs Aldridge; then there would be no tax to be paid.

Sometimes Beneficiaries redirect part of their inheritance to charity. This is because you do not pay Inheritance Tax on money paid to UK registered charities. Some people choose to make gifts to their preferred charity rather than paying Inheritance Tax to the Government.

Example 2: Charity Exemption

Mr Brownlee is a widower and made a Will leaving his Estate valued at £500,000 to his two children. On his death the Estate would pay £70,000 in Inheritance Tax and the children would receive £430,000. However if his children varied the Will to leave £175,000 to The Guide Dogs for The Blind Association, they would receive only £325,000 but there would be no Inheritance Tax to be paid.

The distribution of inheritance in an intestate Estate (i.e. where the deceased died without leaving a valid Will) can also be altered by a Deed of Variation. The Law on Intestacy sets out who should benefit and in what shares if the deceased has not made a Will. The rules are very old fashioned. The Beneficiaries in these Estates are spouses/ civil partners and blood relatives only. Unmarried partners who are co-habiting do not automatically inherit. So sometimes families will choose to vary the inheritance so that the deceased’s unmarried partner can receive an inheritance.

Example 3: Providing an Inheritance

Ms Brownlee dies without making a Will. She lived with her partner Mr Aldridge in Poole. They each own a half share in the property as Tenants in Common. Ms Brownlee’s family learn that Mr Aldridge will not automatically inherit because they were not married and she forgot to make a Will. So they sign a Deed of Variation gifting him Ms Brownlee’s share of their property.

To carry out the variation successfully there are several conditions:-

  1. The variation must happen within two years of the date of death.
  2. You must have the agreement of everyone who is adversely affected.
  3. You can only vary the same entitlement once

You need to think carefully about whether the Deed of Variation should have effect for Inheritance Tax and Capital Gains Tax purposes. This means that the variation shall take effect as though it was made by the deceased. The new Beneficiaries will be treated as though they received the inheritance directly from the deceased on their death and at the date of death value.

If you would like advice on varying an inheritance please contact our expert  Wills, Trust and Probate lawyers based at our Bournemouth and  Christchurch offices:

Clare Lawson – Moordown – 01202 527008

Lloyd Thomas  – Lansdowne – 01202 294411

Andrew Lilley – Highcliffe – 01425 282150

Please note, this is not legal advice. It is intended to provide information of general interest about current legal issues.

Registered Office: 13 Christchurch Road Bournemouth BH1 3JY. Authorised and Regulated by the Solicitors Regulation Authority. Aldridge Brownlee Solicitors LLP is a limited liability partnership registered in England number OC334502

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