Consideration brought in from outside the estate
IHTA84/S142(1) does not apply to a variation or disclaimer if it is made to any extent for a consideration in money or money’s worth not provided out of the death estate (IHTM35071), IHTA84/S142(3).
These provisions apply mainly where, in effect, the beneficiary under a redirection made by a variation (or as a result of a disclaimer) purchases out of his or her own pocket a benefit from the person entitled under the deceased’s Will, etc. Its primary purpose is to ensure that spouse, civil partner (IHTM11032) or charity exemption is not available for property given to non-exempt beneficiaries.
A disclaimer or variation made to avoid or compromise a claim under the Inheritance (Provision for Family and Dependants) Act 1975 is accepted as not caught by IHTA84/s142(3) unless the deceased dies domiciled outside the UK, in which case the matter should be referred to Technical. The bar against consideration relates only to extraneous consideration and will not prevent a rearrangement of assets within the will.
You should refer at an early stage to Technical any case where
- it is thought a variation or disclaimer may have been made for extraneous consideration, or
- there is any doubt about possible extraneous consideration.
Amin dies leaving his estate worth £900,000 to his sons. The sons enter into a variation redirecting the estate to their mother (to try to obtain spouse or civil partner exemption from IHT).
However, the mother uses £900,000 from her own resources (or borrows the money) to compensate the sons for the loss of their shares in father’s estate.
But for IHTA84/S142(3), the net result would be that the sons still get £900,000 but no IHT would be payable. Subsection (3) steps in to disapply subsection (1) with the result that the variation cannot be taken into account in determining the tax payable on the father’s death. Thus, spouse or civil partner exemption is denied and the estate remains chargeable to tax.
By Will Theo leaves a house to Anna. By an instrument of variation Anna, with gratuitous intent, transfers the house to Bob for a consideration equal to a quarter of its value. Bob finds that consideration from his own resources.
IHTA84/S142(3) prevents IHTA84/S142(1) from applying to the IoV.
Carl dies leaving a house to his daughter. She makes a variation redirecting the house to her mother. To compensate her for the loss of the house, her brother pays her its value from his own resources.
Because the variation was made for a consideration not provided out of C’s death estate, it is not within IHTA84/S142(1).