Post-death variations & disclaimers

WAE.09 — Post-death Variations & Disclaimers

A beneficiary cannot be forced to take a gift, and can redirect what they were due to receive after death. Two routes: a variation (redirect to a chosen new beneficiary) or a disclaimer (refuse outright — the asset falls back into the estate and devolves as if the original gift had failed; you cannot choose the destination).

The reading-back relief (the core of the topic)

Normally a beneficiary redirecting their inheritance makes a lifetime gift (a PET for IHT, a disposal for CGT). The relief avoids that.

• IHT — IHTA 1984 s.142. A written variation/disclaimer is read back to the date of death (the deceased is treated as having made the gift), so it is not a transfer of value by the redirecting beneficiary.
• CGT — TCGA 1992 s.62(6). Equivalent reading-back: no disposal by the original beneficiary; the new beneficiary takes at probate value (no held-over gain crystallised).

Conditions (must get all of these right)

• In writing.
• Within 2 years of death.
• Contains an express statement that s.142 (and/or s.62(6)) is to apply (separate statements — you can elect for one tax and not the other).
• The beneficiary varying must not have received consideration in money or money's worth (a non-cash swap between beneficiaries is fine; cash for the variation defeats the relief).
• An asset can be varied once only — you cannot vary the same property twice.

Key uses

• Redirect to skip a generation / use a beneficiary's own NRB.
• Direct a gift to charity (exempt under s.23) — and a redirection lifting charitable giving to ≥10% of the net estate secures the 36% reduced IHT rate.
• Capture the RNRB by leaving the home to direct descendants.
• Fix an intestacy or unequal Will distribution.

Common traps

• No retrospective income tax relief — s.142/s.62(6) cover IHT and CGT only; income arising before the variation stays taxed on the original beneficiary.
• Settlor for income tax / IHT settlement rules: if the new beneficiary is the redirector's own minor unmarried child and assets go into trust, the redirector can be treated as settlor.
• A disclaimer cannot be made after the beneficiary has accepted any benefit from the gift, and cannot be partial as to a single gift; a variation can be partial and directed.
• A deed isn't required for s.142 — writing plus the statement suffices — but a deed is best practice.