My mum wants to disinherit my sister: What tax will I pay if I split my share with her?

I am my mother’s full-time caregiver six days a week and I go home one day to spend with my husband and family.

Before my mother got sick, she changed her will and left everything to me. She doesn’t have a relationship with my sister, but I do.

Unfortunately, if my mother dies, I know it will cause terrible dismay, which is why I’ve decided that I’ll give my sister half of the money from the house sale.

Can you help me how this will affect me fiscally? I have two part-time jobs and a pension. The property is probably worth around £450,000.

SCROLL DOWN TO FIND OUT HOW TO ASK HEATHER YOUR TAX QUESTION

Heather Rogers replies: As often as a family member passes away, there are so many fights and arguments over assets that relationships break down permanently.

It’s refreshing to hear from people who only want to do the right thing and be honest, even if you’re clearly sacrificing a huge chunk of your own life to be your mom’s caretaker.

If your mother doesn’t want to change her will and leave everything to you, that’s fine and that’s her wish.

However, you as her beneficiary clearly feel differently and have different intentions when your mother finally passes away and you inherit her estate.

As for how to implement this plan, you don’t have to donate half of the proceeds from the property sale directly to your sister yourself.

Instead, this could be done through something known as an “act of variation.” Please note that you should obtain legal advice before doing this.

What is a Deed of Variation?

A deed of amendment is a document that allows beneficiaries of a will to make changes to the distribution of the estate.

It allows beneficiaries named in the will to add new beneficiaries by changing the division of assets between them.

How does this affect the tax position?

For estate and capital gains tax purposes, the situation is usually as if the distribution was made by the deceased through the will.

This means that the transfer of any of an existing beneficiary’s assets under the will to an additional beneficiary is treated as if the gift had been bequeathed to them in the will of the deceased, not as a gift from the beneficiary to them.

If you were to make the gift directly to your sister, as you originally planned to do, you could run into some personal tax issues, which is why the deed of amendment may be the better option, but as mentioned above, ask beforehand advice on any decision.

See the box to the right for an explanation of inheritance tax, and see here for an earlier column on how capital gains tax works.

How does a deed of variation work?

– All beneficiaries concerned must agree in writing to the change.

They must be over the age of 18 (there are special rules for all affected beneficiaries who are minors and require court approval).

– The deed of amendment must be drawn up within two years of the date of death. It can be done before or after probate is granted.

– The deed can be executed even after the assets have been divided, as long as it is within the two-year period.

– It must be signed by all beneficiaries concerned and must clearly indicate what changes have been made and who will benefit from them.

– The deed must include a statement that the signatories intend for the amendment to be valid for both Inheritance and Capital Gains Tax purposes.

– It must be sent to HMRC within six months of signing if it results in increased inheritance tax being payable on the estate.

– You can change the division of the estate even if the original beneficiary dies, as long as the change remains within the two-year period. Get legal advice on this.

– If the deceased has died without leaving a will, the so-called ‘intestate’, then the law determines who inherits in a certain order. (This is a very good reason to make a will).

However, if the beneficiaries of such a division agree, a deed of amendment can still be drawn up.

– You do not have to change a will via a deed. It can also be done by letter or other document, as long as it is in writing.

However, it is better to consult a lawyer or tax advisor for this, to avoid problems and to ensure that all parties fully understand the nature of any changes.

What are the benefits of a deed of variation?

Aside from including a family member or special friend who has been disfellowshipped, many variation deeds are used for estate tax planning purposes.

For example, a father may leave his estate to his son, but his son already has a large estate of his own and so an act of variation is made by the son after his father’s death, to pass his father’s inheritance to his own son. , the grandchild of the deceased.

The grandchild inherits as if he were the named beneficiary in the will and avoids the money passing through the son’s estate, reducing liability for estate taxes.

Making charitable donations can also be a popular choice. If 10 percent of the estate is left to charity, the inheritance tax rate will be reduced from 40 percent to 36 percent.

Variation deeds can also be used to ensure that a vulnerable family member receives the care they need, or to place assets on trust.

They are also useful if a will has to be made hastily due to a serious illness.

A simple will can then be made, leaving the entire estate to the spouse, for example, and they can consider any other divisions within the two-year period.

Are there any downsides to a deed of variation?

Once an amendment deed has been created, it cannot be changed.

Also, if a redistribution of assets means that a creditor cannot collect its debt as a result of the redistribution, then it would not be valid.

This also applies to those who receive an income-related benefit.

If the beneficiary voluntarily gives away assets inherited from an estate through an amendment deed, they may no longer be eligible for their benefit, as the inheritance may be considered part of the means-tested assessment.