This issue’s Tech Q&A answers questions on inheritance tax and pension beneficiaries
Q Can a deed of variation be completed without other beneficiaries knowing? My client wishes to pass her inheritance to her children but doesn’t want her brother and sister who are also beneficiaries to be aware of this. Also, please can you remind me what conditions need to be satisfied for a deed of variation to be valid?
A Beneficiaries can only vary/amend their own share of the estate – i.e. any amount/share inherited by them. So, the position will very much depend on whether the brother’s or sister’s share of the estate will be affected by the variation. The brother and sister will only need to agree to the variation if they’re affected by the change. Therefore, if your client has inherited a specific amount/share then it would be possible for her to enter into a deed of variation and redirect her inheritance to her children, if wanted, without making her brother or sister aware of the variation.
For inheritance tax (IHT) purposes, it is vital that all of the necessary conditions are satisfied for the variation to be treated as having been made by the deceased – broadly:
- The variation must be made within two years of the deceased’s death.
- It must contain a statement that section 142 of the Inheritance Tax Act (s142) 1984 applies.
- It must indicate, clearly, which disposition (i.e. the benefit inherited) is the subject of the variation and who is to benefit from the variation.
- All beneficiaries that are affected by the variation (i.e. who would lose out because of it) must agree and be party to it.
- It must be in writing (not necessarily by deed but it is advisable).
- It must not be for consideration.
The personal representatives of the deceased only need to be a party to the variation if it results in additional IHT becoming payable – in which case the deed must be submitted to HMRC within six months of making the variation. If the variation does not affect the IHT payable, the deed does not need to be sent to HMRC.
Q If a client dies before the age of 75 and nominates their spouse to receive a dependants’ drawdown, tax free, can this then be passed down to their children in the same way on their death?
A Yes, assuming the product allows this. Note though that the taxation on the second death will depend on the age the beneficiary dies rather than the original member. If the initial beneficiary dies aged 75 or over, the benefits will then become taxable as and when the children withdraw them. If the initial beneficiary dies under 75, the benefits remain free of tax.
Taken from the Technical Connection Techlink Professional question bank.
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