Passing family inheritance onto children

By Juliet Phillips-James, Director, Gomer Williams (as featured in the Llanelli Star)

Q. I have been left a significant amount of money under my aunt's will. However, as I am comfortably well off I would rather that this money went to my children. Could you please advise me as to the best way I can do this, avoiding any tax implications or complications for myself?

A: You will need to enter into a Deed of Variation. This allows you as a beneficiary to re-direct your gift to your children. Essentially it varies a will or intestacy ( where there is no will).
You can only vary your own legacy under the Deed of Variation. Other beneficiaries would have to consent to a variation of their own legacy. If the beneficiary is under 18, their legacy cannot be varied without the consent of the court
A Deed of Variation can be done at anytime, however, if it is done to save inheritance tax or capital gains tax it must follow the requirements below:
  • It must be completed within two years of the date of death;
  • There should be no incentives or inducements (such as a cash payment) given to any beneficiary to enter into the deed;
  • The destination of an asset cannot be varied more than once in different deeds;
  • The right tax declaration must be included in the deed.
The Deed of Variation can ensure that the estate can be passed on in the most inheritance tax efficient way. As well may be the case in your circumstances, your own personal assets may be close to or above the current inheritance tax threshold. By entering into a Deed of Variation passing on your legacy to your children, you are potentially reducing the ultimate inheritance tax liability on your estate. You are not classed as having made the gift, it is the deceased who is deemed to have made the transfer.
There are also other tax benefits that can be gained by entering into a Deed of Variation which a solicitor or accountant can discuss with you.

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