Believe it or not, people don’t always want to receive an inheritance. Wills & Probate Solicitor Keith Baldock-Grimes discusses what options you have if you do not want to accept your gift…
What If I Don’t Want My Inheritance?
If you’d rather not accept inheritance from a deceased person’s estate, you have a few options…
You could accept the inheritance and then simply give it away. This however, could have tax implications.
There is the option to refuse or ‘disclaim’. If you disclaim an inheritance it will stay as part of the deceased’s estate and will be re-distributed. The problem with this is that you have no control over where the asset goes. It could pass to someone who you would prefer not to receive it.
Is There A Better Way?
A better approach may be to change the direction of the gift using a ‘post-death variation’.
UK tax laws allow post-death variations to be treated for tax purposes as though the changes to the inheritance had been put in place by the deceased, rather than the original beneficiary.
This gives a double advantage. You can avoid an adverse tax situation and choose where the inheritance goes.
But do be aware that there are specific conditions that apply to post-death variations. If these conditions are not met the tax advantages will be lost…
A variation must be in writing. This document is usually referred to as a Deed of Variation. This can be used to make post-death changes to a Will, or to re-direct a share of an estate.
A Deed of Variation must be completed within two years of the death to qualify for exemption under the inheritance tax (IHT) and capital gains tax rules. It must also contain a statement that the tax exemption rules are to apply.
So What Happens Next?
The idea of refusing an inheritance may seem strange. But there are several reasons why a deed of variation could make sense.
People who are already financially secure often want to re-direct an inheritance to avoid increasing the value of their own estates and so prevent or reduce IHT when they die.
It may also allow the advantage of certain reliefs or exemptions such as Business Property Relief (BPR).
A deceased business owner leaving business assets to their spouse or civil partner, wastes any BPR because assets passing on death to a spouse or civil partner are already tax exempt.
A deed of variation, re-directing qualifying assets to non-exempt persons makes full use of the available BPR.
There are many good reasons for making a deed of variation… However, there are also some situations where it could be unwise. For example:
If a deal is made that means the original beneficiary will receive some reward in return for giving up their inheritance; the post-death variation will not qualify for tax exemption.
A beneficiary in receipt of state benefits who re-directs an inheritance to someone else, could lose their means-tested benefits.
A person receiving care, funded by a local authority, who re-directs an inheritance to another person risks breaching the ‘deliberate deprivation’ rules.
A deed of variation can be a very useful tool for some people so it’s worth doing it properly.
Remember the two-year rule and discuss it with your Solicitor as soon as possible after a death if you feel it could be useful.
How Can Timms Help?
If you need any further information, please contact me on 01283 214231 or via email at k.baldock-grimes@timms-law.com.
December 2023
