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Is There An Inheritance Tax Loophole?

There aren’t many people in the UK who like the idea of inheritance tax – it seems that it’s just the politicians who are keen on it. But what can be done about it? Surely it is something that must simply be paid and be done with?

Not necessarily. There is an inheritance tax loophole that more and more people are taking advantage of.

It all relates to the ‘deed of variation’. The dead of variation allows the beneficiaries of a will to redirect the assets left to them to other people. But how does this help?

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Firstly, it means that the inheritance can be given straight to those who might have a more immediate need for it such as grandchildren rather than children. Secondly – and perhaps more importantly in many respects – it can reduce the overall inheritance tax liability for the family. It effectively diverts wealth away from an estate that is already close to the inheritance tax liability threshold, and it means that the estate won’t be taxed twice.

There are certain criteria that need to be met for this to happen, however. The changes must be made within two years of the death. All the beneficiaries within the will must agree to any changes made, otherwise it cannot happen. They must all sign the variation. The variation deed must be very clear about who is to inherit, and everything must be set out in writing. It should also contain a stamp duty exemption certificate if any stocks or shares have been changed. If the changes are being made with regards to inheritance tax or capital gains tax, there must be a signed note to that effect along with the deed of variation. 

What Should An Executor Know About Selling The Home Of The Deceased?

As an executor, you will have a number of different jobs and duties to perform. One of these could be selling the property of the deceased; what do you need to know before you get started?

Firstly, you will need a grant of probate in order to sell or transfer the property. This can take some time to come through – in a straightforward case it can take around three months, and if there is inheritance tax to pay it can take much longer. In the meantime, the mortgage will still need to be paid.

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You will also need to get a valuation on the property in order to process the grant of probate. This should be carried out by three separate estate agents, and the average used as the final valuation. Another option is to obtain a surveyor’s valuation.

Next you will need to check the title of the property to ensure it is under the right name. This can be done by downloading a copy of the plan through the Land Registry and checking that the deceased’s name is on it. You will also need to check that the plan shows the full extent of the property. If the property is not registered with the Land Registry, you will need to locate the paper copies of the title deeds.

When the deeds are to hand, any defects and restrictions to the property should also be noted – these may need to be dealt with before the property is legally able to be sold.

It is perfectly possible to put the house on the market as soon as a valuation has been carried out, but you must remember that it cannot actually be sold until the grant of probate has been authorised. Any potential buyers – and the estate agent themselves – must be made aware of this in order for a realistic timeframe to be discussed.

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Once the property has sold, capital gains tax will need to be considered. For 2016-2017, executors have a CGT allowance of £11,100. Inheritance tax should already have been paid, but if the property sells for less than the valuation, the executor will be able to claim back what they overpaid.  

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