Deeds of variation provide for the rewriting of a will or applicable intestacy rules. Deeds of variation can be made within two years of the decedent's death.  Deeds can only vary assets that actually pass through the estate-executors, for example, cannot vary non-estate assets such as benefits designated under Independent Retirement Plans.  

For example, if Arthur left his entire estate outright to Juliet, his U.K. citizen/domiciled spouse, U.S. estate tax would be payable (subject to applicable exemptions) but no U.K. inheritance tax as full spouse relief. On Juliet's death, her estate-if U.K. domiciled-would be subject to U.K. inheritance tax on her worldwide assets, including those inherited from Arthur.  That amounts to 85% taxes on worldwide assets on the combined deaths.  By signing a deed of variation redirecting her entitlement into a QDOT, the QDOT structure will be treated as having been created by Arthur under his will for inheritance tax purposes and not as a gift by Juliet. This will avoid the potential double tax charge by deferring the U.S. federal estate tax charge to Juliet's death, when the U.K. inheritance tax would be payable.  

Posthumous severance of a joint tenancy property is also possible (effective for inheritance and capital gains tax purposes only).

Disclaimers are also possible. U.K. disclaimers are similar to qualified disclaimers in the U.S., but there is one fundamental difference: The effect of a disclaimer in the U.K. is to treat the beneficiary as having renounced, not as having predeceased.

This could cause a problem where a will provides for what should happen if a beneficiary predeceases. In the U.S., the qualified disclaimer would apply. In the U.K., these provisions may not and, depending upon the wording of the will, could result in the renounced interest falling under the intestacy rules.

Tax During The Administration Period
Besides inheritance tax, there are other U.K. taxes to keep in mind during the administrative period.

Like the U.S., the U.K. has a capital gains tax. Under U.K. rules, executors take the decedent's residence for U.K. capital gains tax purposes.  If the decedent was resident in the U.K. at death, his estate is subject to capital gains tax on worldwide gains. If he was not a U.K. resident, the executors are not liable for capital gains tax even on U.K. gains.

For example, Juliet later returned to the U.K. and died owning substantial assets in the U.S. which were sold by her executors at significant gains-even with the step up in basis on death.  As she had been resident in the U.K. for capital gains tax purposes, these gains are subject to U.K. capital gains tax. The fact that the funds were never transferred to the U.K. made no difference.

A different set of rules applies to income tax. Here, the residence of the executors (rather than the decedent) will determine
income tax liability.  If the estate has multiple executors with mixed residences, consider having a non-U.K. resident executor take out the grant so the estate is only subject to U.K. income tax on U.K. situs income. If a U.K. resident executor takes out the grant of representation, the estate is subject to U.K. income tax on worldwide income (although there is a concession if the decedent was non-U.K. domiciled).  

Also keep in mind that beneficiaries of residual assets will be treated as receiving income before capital in any tax year. For example, the distribution of a chattel will be treated as a distribution of income.