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HMRC internal manual

Inheritance Tax Manual

IHT implications of an Instrument of Variation: effect of coming within s.142

When a variation satisfies the requirements of IHTA84/S142(1) and there is a valid election or, on or after 1 August 2002, a valid statement of intent

  • the variation is not a transfer of value, and
  • the IHTA84 applies as if the deceased had effected the variation

Consequently, for example

  • if the extent to which the death estate is exempt is increased (IHTM35152) or decreased, you may need to adjust the tax (IHTM35153) on the whole of the death estate, including property taxable at a separate title, such as settled property in which the deceased had a life interest,
  • if a variation sets up a non-interest in possession trust, the deceased is treated as the settlor, and
  • the gift with reservation rules in FA86/S102 cannot apply to a disposition which is accepted as a variation within IHTA84/S142(1).  This is because the effect of IHTA84/S142(1) is that the deceased is treated as the donor.