Reasons for making a variation
There are a number of reasons a person may choose to give up their entitlement:
• To provide for others who are in greater need of funds or other resources, such as a house.
• Giving 10% of the estate to a beneficiary who is exempt from paying Inheritance Tax (IHT) (such as a charity) can lower the Inheritance Tax rate from 40% to 36% resulting in a lower IHT bill for the estate as a whole.
• Redirecting assets qualifying for IHT relief from an exempt beneficiary to a non-exempt beneficiary so that the relief is not wasted i.e., business property.
• Using the deceased’s IHT nil rate band by creating a discretionary trust or making an absolute gift of the value of the nil rate band.
• Using the deceased’s residence nil rate band by redirecting the deceased’s qualifying interest to their descendants.
A beneficiary who gives up their entitlement makes a lifetime disposition. However, if the disposition is made within two years after the deceased’s death, it is treated as if it had been made by the deceased for inheritance tax and capital gains tax purposes.