Receiving an inheritance from a deceased person’s estate can be a bittersweet experience at the best of times. Although you may have received a windfall, you have probably lost someone very dear to you.
Many people are unaware that we have up to 6 months to pay any Inheritance Tax (IHT) due, and up to 2 years to retrospectively plan our inheritance properly and effectively.
Inheritance Tax will be due upon an estate value subject to the deceased person’s circumstances at the time of their death. There are various thresholds for IHT, which range from £325,000 for a non-widowed single deceased person, up to £1,325,000 for a deceased married person, widowed more than once, who is passing up to £350,000 worth of residential property to DIRECT descendants (children, stepchildren, grandchildren, etc.).
Also, if an intended beneficiary would enjoy greater benefit by structuring their inheritance more effectively, that beneficiary has up to 2 years after the death of the deceased person to retrospectively reorganize their inheritance to their own advantage. The effect is as if the deceased had done so before their death, and it is known as undertaking a “Deed of Variation”. For example, if a potential divorce is a likelihood, but not yet in progress, an inheritor can arrange for their inheritance to be restricted so that they may continue to enjoy full use and benefit of it during their lifetime, but it cannot be considered as part of any future divorce settlement.
There are various other reasons why someone may wish to undertake a Deed of Variation, including but not limited to ensuring that an inheritance does not endanger an existing state benefits entitlement, or to favour a more deserving beneficiary (if the intended beneficiary does not require their inheritance or wishes to avoid inflating their own estate value), or to minimize the impact upon a residential property if the beneficiary is concerned about paying for any future potential care fees if they ever require long-term care and they do not wish for the deceased’s share value of the property to also be eaten up in subsequent care fees. Please note that the quality and location of any care provided would be unaffected by this action.