Q Does there have to be a Will in the first place?
No. If there isn’t a Will, the laws of ‘intestacy’ usually apply.
Intestacy means dying without having made a Will. The estate will usually go to the deceased’s next of kin (the immediate family) in accordance with statutory rules, but the heirs can change the way people benefit from the estate by making a variation.
Q Can inheritances be changed after a death?
Yes, but all the ‘beneficiaries’ (the people who benefit from an inheritance) who would inherit less as a result of the change must agree. The change is called a ‘variation’. A variation can
Affect the amount of inheritance tax payable on the death
Alter how capital gains tax might be charged in the future
If the beneficiaries making the variation want it to take effect for inheritance tax, capital gains tax or both, the variation must contain a statement to that effect.
Q How do I make a variation?
For a variation to take effect for inheritance tax, capital gains tax or both, it must meet the following conditions.
The variation must be made within two years after the death.
There is no facility to extend this time limit. If the variation is made more than two years after the death, it cannot be given ‘retrospective’ effect for inheritance tax or capital gains tax. A variation made on the second anniversary of the death will qualify provided it meets all the other conditions.
The variation must be in writing and signed by all the beneficiaries who would lose out because of it.
Usually a solicitor will draw up a formal deed, but this is not essential. All the beneficiaries who would inherit less because of the variation must sign it. If the variation affects the interests of children (or even of children not yet born) a solicitor should be consulted, as the approval of a Court may be required. A parent’s signature on behalf of a child is not sufficient.
If the variation means that more inheritance tax will be paid, the executors or administrators (those who look after the deceased’s affairs) must also agree to the variation and must sign it.
The variation must contain a statement that it is to take effect for tax purposes.
If the beneficiaries who are making the variation want it to have ‘retrospective’ effect for tax purposes, the variation must contain a statement of intent to that effect. The beneficiaries can choose whether the variation takes effect for inheritance tax only, for capital gains tax only or for both taxes. For example, this statement would mean that the variation takes effect for both taxes
“The parties to this variation intend that the provisions of section 142(1) Inheritance Tax Act 1984 and section 62(6) Taxation of Chargeable Gains Act 1992 shall apply.”
The variation must clearly state the inheritances that are being changed and how they are being altered.
In other words, for the parts of the estate being varied, the variation should set out
How the estate originally passed under the Will or by intestacy, and
Who is now to receive the benefit from the inheritance as a result of the variation
The variation must contain a stamp duty exemption certificate, or be stamped.
Provided no payments are made from outside the estate as part of the changes made by the variation (this will be the case for the majority of variations), the variation may include a stamp duty exemption certificate.
The words for an exemption certificate are “I/We certify that this instrument falls within category M in the Schedule to the Stamp Duty (Exempt Instruments) Regulations 1987.”
A variation will only be effective without an exemption certificate if has been stamped with duty by the Stamp Office..
A variation must only relate to assets the deceased owned, or to his or her share of assets held jointly.
For inheritance tax, a person’s estate includes assets held in trust in which he or she has a right to get some personal benefit and gifts from which he or she keeps back some benefit. A variation that seeks to change who is to receive assets in either category cannot be treated for tax purposes as if the deceased had made it.
The variation can only change who is to receive the same assets or entitlement under a Will or by intestacy once.
The destination of the same assets or entitlement passing under a Will or by intestacy cannot be varied more than once. Any variation that does so will not be treated as if the deceased had made it.
The variation cannot be made in connection with another transfer.
Where a variation is made and assets from outside the estate are used to compensate the original beneficiary for his or her loss, the variation will not be treated as if the deceased had made it.
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