I have been doing my husband's and his mother's tax returns for several years.
My husband's grandmother died around 2 years ago, and he and his mother have been working with a legal adviser to change her will (by deed of variation) so that the grandmother's interest in a property pass directly to my husband rather than to his mother. I understand from the adviser that the document is "live and valid". However there is another document needing to be processed by the Land Registry prior to the deed of variation, and therefore the Land Registry cannot "register the Declaration of Trust and complete the transfer at present". I understand that the changes made date back to the date of death.
My questions relate to the tax implications of all this, which the legal adviser has been remarkably unhelpful about. So:
1) As the final transfer is pending, should I hold off filing the 2 tax returns until end January, and then (if the current position does not change) file tax returns on the basis of the transfer having occured? Or the transfer not having occured? Or?
2) I presume at some point I would need to file amended returns for prior years. Given that the prior year returns did not mention that any of the figures may change in light of this, will there be penalties for filing amended returns, and presumably there will be a tax charge/rebate for the my husband / his mother?
Many thanks for any light anyone can shed on this.
Replies (4)
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It should be OK because...
For income tax purposes the changes to the will only take effect from the date of the deed. They are not backdated to the date of death.
For capital gains tax purposes, however, the assets will be deemed to have been acquired by your husband at the point of grandmother's death at probate value.
Just one point to add
The deed must have been effected within two years of the date of death - (which you say was around 2 years ago!).
Income Tax not effective
Whilst I appreciate that I may be out of date my understanding was that a Deed of Variation was only effective to CGT and IHT. TSEM1815 also states that it is only effective back to date of death if the Deed specifies that fact.
Income Tax liabilities are unaffected so unless a Capital Gain has been reported tax returns should not be affected
Agree
that IT position is changed only from the date the deed is effected.
The deed should contain elections under s142 IHTA and s62(6) TCGA 1992 and then it will be effective for those taxes as if the deceased had left the asset to the new beneficiary.