4.

Variations :
Estate planning with CGT and IHT
impact
Post- death variations
This is overall when the current beneficiary would like
someone else to benefit for example their children. Under
the IHT and CGT legislation, gifts can be made directly
from the deceased to the new beneficiary subject to some
formalities. All of these apply to property passing by will,
intestacy or survivorship.
Deed of variation
Formalities: Written, signed by person giving benefit and
by PRs. S 142 obliges PR to consent as long as they are
provided with funds to meet tax liability. Variations to be
made within 2 years from date of death and indicate
changes being made. There must be a statement in the
instrument of variation.
Variations to charity after 6.4.12: to notify the charity and
s142 writing back effect only applies where HMRC has
confirmation that this has been done. Overall to not apply
until written to them.
Consent of court
Court has power to consent on behalf of beneficiaries who
lack mental capacity, powers only where proposed
arrangement for benefit of beneficiary.
Disclaimer
Can refuse to accept it. In this case it will pass on as part
of the residuary gift, however person disclaiming cannot
control designation of property. Here person is treated as
they are dead, but this should be done as soon as
possible. The share is then passed on in accordance to the
will or intestacy rules.
Formalities: also to be in writing and to be within 2 years
of the death

Tax consequences
IHT consideration
When transferred -value of asset frozen at date of transfer
so when it becomes chargeable it will increase in value at
date of transfer and any decrease is taken into account. In
other words where asset fallen in value at date of death,
reduced value to be taken into account. Overall the sooner
asset given away, smaller increase in value will be, less
CGT payable.
This includes those eligible for 100% relief where the relief
is only available where the transferee still owns the
original property at date of transfer when it becomes
transferable.
Excluded 3 categories:
1. Reversionary:- excluded property not part of the
death estate for IHT purposes. This is entitlement to
capital after interest in possession ends.
2. Life assurance polices: policyholders can assign
benefit of the life policy. Premiums payable is usually
excluded part of income. Expenditure
3. Death in service benefits: lump sum which trustees of
pension schemes pay to family members of
dependents of deceased employee.
CGT
CGT charged when asset disposed of for more than its
acquisition value. Disposal on death will receive CGT
saving at no IHT cost.
Beneficiary regarded as settlor of settlement that comes
into existence as a result of the variation- TCGA s68C.
Hold over relief usually available on certain gifts and sales
at an undervalue. This is where tax is deferred at later
date. Long term disadvantage is fact that person who gets
gift would acquire at reduced value, so when asset
disposed there is likely to be a bigger gain.
Two ways hold over claimed:
1. S165 taxation of chargeable gains act 1992 disposal
of business asset

2. S260- transfer of assets immediately chargeable to

IHT. This is useful for those who want to make
substantial gifts.
Both 165 & 260 not available where disposal to trust
which settlor interested.
See table for IHT and CGT consequences due to
variations! including the deceased beneficiary.