IHTM35093 | Property redirected to the spouse or civil partner: gifts back to original beneficiaries

This is one of a couple of schemes (see also IHTM35094) where the taxpayer seeks to take advantage of the provisions of IHTA84/S142 without there being a bona fide variation. Most commonly, chargeable beneficiaries will give up benefits under the will in favour of the surviving spouse or civil partner (IHTM11032), thus gaining the benefit of spouse or civil partner exemption. The spouse or civil partner then returns the benefits to the original beneficiaries. Where a chargeable beneficiary makes an instrument of variation (IoV) in favour of the deceased’s spouse or civil partner you should ask the taxpayers

• whether there had been any discussion between the parties before the IoV was made about how the benefit redirected to the spouse or civil partner should be dealt with, and

• whether subsequent to the IoV the spouse or civil partner has made any transfers to the original chargeable beneficiaries, or is contemplating making any such transfers.

The IoV may create an interest in possession (IHTM16061) trust for the surviving spouse or civil partner, but the trustees have a power of appointment by which they can appoint capital to other beneficiaries, usually including the original beneficiaries under the will. Where this applies, the second question above should be amended to ask whether the trustees have already exercised the power of appointment or whether an exercise of it is contemplated.

Where the answers to those questions indicate any possibility that the spouse or civil partner may not retain all the redirected benefits, for example if the spouse appears to have no need of the benefit, or the original chargeable beneficiary is likely to want to keep the benefit (for example, for business reasons), you should refer the case to Technical.