Private Client/Wills and Probate: Variations and disclaimers of beneficiary entitlement

Where a beneficiary receives entitlement under will or intestacy but does not wish to keep that benefit for themselves, there are 2 main options.

Variation - used where the beneficiary wishes someone else to take the benefit
Disclaimer - used where the beneficiary refuses the gift entirely

The governing law is s.142 Inheritance Tax Act 1984 which applies to both variations and disclaimers.

Anyone over the age of 18 with sufficient mental capacity is able to vary/disclaim.

The conditions that must be met are:
- In writing
- Within 2 years of the death
- Not for money or any other form of consideration
- HMRC must be notified where additional tax is due

Variation may be over whole or part of the entitlement; disclaimer must be over the whole.
Variation may be before or after acceptance of the gift; disclaimer must be before acceptance.

Tax consequences of a variation or disclaimer: under usual rules, giving an interest away would be classed as a PET (Potentially Exempt Transfer - IHT is only payable if the person giving the gift dies within 7 years) for IHT, and would be a 'Deemed Disposal' for CGT. However, as long as s.142 IHTA and s.62(6) TCGA are adhered to, no tax will be payable.


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