TSEM1815 - Introduction to trusts: supplementary deeds, deed of variation or family arrangement

TCGA92/S62 (6)

An instrument or deed of variation or family arrangement enables beneficiaries of a deceased’s estate to alter the distribution of that estate. It is sometimes known as a deed of assignment (TSEM1845), or deed of surrender or release (TSEM1850).

Tax implications

A beneficiary normally executes a deed within two years of the death. This means that changes attributable to the deceased can be beneficial for capital gains tax, and inheritance tax purposes. But with effect from 1 August 2002, the changes will only be effective from the date of death (TCGA92/S62(6) and IHTA84/S142) if the deed contains a statement of intent that it is to take effect for tax purposes. Deeds of variation may be effective for capital gains tax and inheritance tax, but they do not change either the general law position or the income tax position. There is no equivalent legislation to make these deeds work retrospectively for income tax purposes. For the purposes of Chapter 6, Part 5 ITTOIA the deed may have the effect of changing the identity of the person who will be deemed to have received income.

Settlor

The settlor of a trust created by a deed is not the deceased, unless it’s a disclaimer (TSEM1840). It is the person who was entitled to the gift that has now gone into trust. The gift can be capital or income or both. The case of Marshall v Kerr (67 TC 56) is relevant. There may be more than one settlor.

Receipt of a deed of variation or family arrangement

If HMRC receives a deed that was not requested, or if a deed was requested, internal users should refer to TSEM1705.

If the deed creates a new trust, the trustee is required to complete the online Trusts Registration Service to obtain a Unique Taxpayer Reference number for the trust.

Problems

If internal users have any problems with the income tax position of such a deed, they should refer the case to Trusts Technical for advice (see TSEM2001).

Tax case

Marshall v Kerr 67 TC 56