IHTM35153 | IHT implications of an Instrument of Variation: increased tax as result of instrument executed before 1 August 2002

Where the effect of an IHTA84/S142(1) variation or disclaimer is to increase the tax payable on the death

• an IHTA84/S239 certificate (IHTM40010) does not prevent us from collecting the additional tax if, but only if, HMRC did not become aware of the variation or disclaimer until after the issue of the certificate, and

• the increase affects all parts of the death estate for IHT purposes, not just the more limited death estate as specially defined for IHTA84/S142.

Example

This example is based on an actual case in which the deceased’s estate for CTT purposes consisted of free estate and settled property in which she had an interest in possession.

Under a deed of variation within FA1978/S68(1), the predecessor of IHTA84/S142(1), the husband reduced the benefits he took under the deceased’s will. There was a consequential increase in the CTT on both the free estate and the settled property.

The trustee/beneficiary objected to our claim for additional tax on the settled property on various grounds, including

• the fact that he was not a party to either the deed or election

• s.68(5), the predecessor of IHTA84/S.142(5), prevented the application of s.68 to settled property, and

• s.68 could not operate retrospectively.

The dispute was taken before the Special Commissioners who upheld our claim for additional tax on the settled property by reference to the deed of variation.