A worked example showing how redirecting £325,000 can keep it out of an adult beneficiary's taxable estate and potentially save £130,000 in inheritance tax.
This guide is part of ProbateHelp's Wills & Planning guide cluster. Estimated reading time: 12 min.
Margaret's £325,000 estate is covered by her own nil-rate band whether it passes to David or, under the variation, to her grandchildren. Redirecting it keeps £325,000 out of David's already taxable estate. At a 40% marginal IHT rate, that is a potential £130,000 saving.
No in this example. Margaret's estate is £325,000 and she made no chargeable lifetime gifts, so her nil-rate band covers the redirected inheritance. Different figures or gifts could change the result.
Not if the instrument satisfies section 142 and contains the required statement of intent. The redirected inheritance is then treated for IHT as passing from Margaret, not as a lifetime gift from David.
The statutory six-month submission rule applies when the variation results in additional IHT. This example does not increase IHT on Margaret's estate, but the family should keep the instrument with the estate records and follow any reporting or corrective-account instructions that apply.
Yes. The grant date does not replace the tax deadline. The instrument must be made within two years of the date of death to qualify for IHT and CGT read-back.
Cash does not create a capital gain in this example. If land, shares or another chargeable asset is redirected, the parties should consider the separate section 62(6) CGT statement and take advice on any disposal or valuation consequences.