It is always best practice to include the personal representatives in deeds of variation whilst the estate is still in administration. There are various reasons for this, mostly involving non-tax law, as there must be a legally effective transfer for the tax breaks to apply.
The CGT and IHT requirements are different as there is no estate administration period for IHT purposes. S62(10) TCGA 1992 states that the variation must be “an instrument in writing made by the persons or any of the persons who benefit or would benefit under the dispositions”. S142(2) IHTA 1984 states the retrospective treatment of the variation does not apply “unless the instrument contains a statement, made by all the relevant persons, to the effect that they intend the subsection to apply to the variation”. S142(2A) includes the personal representatives as “relevant persons” if the variation increases the IHT liability.
Whilst the estate is in administration, the beneficiaries only have a “chose in action” over the assets which are still owned by the personal representatives. S136 Law of Property Act 1925 states that in order for there to be a legally effective assignment of a chose in action, an express notice “in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to claim such debt or thing in action”. Therefore, including the personal representatives in the variation is effectively giving them express notice in writing.
HMRC’s guidance does not mention the non-tax legal requirements (see CG31400C and CG31900C re CGT and IHTM35041 onwards re IHT). However, it is not HMRC’s role to advise on such legal requirements whether relating to estates or anything else. Legal advice should always be sought on the non-tax issues and requirements affecting any tax planning.
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