Double Tax on Inheritance? How a Simple Legal Step Saved £200k

IHT Planning

Following the death of their mother, two brothers, Mike and Paul, each inherited half of her estate.

We acted for the brothers in what was a relatively straightforward probate matter, successfully completing the estate administration.

Each brother subsequently received an inheritance of £500,000.

Once probate had been granted, we discussed future inheritance tax (IHT) planning with both brothers.

Mike already had plans to spend his inheritance, while Paul, who was financially comfortable, was keen to consider his options.

The Challenge

We explained to Paul that his estate already exceeded £1 million, even before factoring in the inheritance from his mother.

As a result, if no action were taken, 40% of the £500,000 would be lost to inheritance tax on his death.

Although Paul could make a lifetime gift of the inheritance to his adult children, he would need to survive for seven years from the date of the gift for the funds to fall outside his estate.

Inheritance Tax and a Deed of Variation

We advised Paul to use a Deed of Variation, a legal document that allows beneficiaries to redirect an inheritance to another person within two years of the original death.

Working alongside our trusted solicitor partners, we helped the family put the Deed in place.

By using the deed Paul was able to redirect his share of his mother’s estate directly to his children.

As the gift was treated as coming directly from the grandmother’s estate, there was no seven-year waiting period for IHT purposes.

Mike’s agreement was not required, as his share of the estate was unaffected.

By taking this step Paul avoided the additional 40% IHT charge that would otherwise have been payable.

Results

Estate value redirected: £500,000
Inheritance tax avoided: £200,000 (40%)
Outcome: The inheritance passed directly to Paul’s children without incurring an unnecessary additional tax bill.

This preserved more of the family’s wealth and reduced future IHT exposure on Paul’s estate.

Key Takeaway

Even after a will has been written, tools like a Deed of Variation can make a significant difference to inheritance tax planning.

When used correctly and within two years of death, it can:

Redirect assets to the next generation
Avoid double taxation
Reduce overall IHT exposure
Ensure family wealth is protected and passed on as intended

A simple legal step (taken at the right time) saved this family £200,000 in unnecessary inheritance tax.

Getting in touch

Inheritance tax planning can be a valuable tool in many situations, helping to reduce tax exposure and preserve more of your estate for future generations.

If you would like to speak to us about our Inheritance Tax Planning Service, please call 01634 731390 or request a call back and a member of our team will contact you.