Inheritance Tax - Deeds of Variation under the Microscope

While the hotly tipped abolition of IHT on the majority of family homes didn’t make the budget speech the promise to scrutinise the use of legal loopholes that help people avoid inheritance tax (“IHT”) did.
Chancellor George Osborne continued his attack on those actively avoiding paying tax and mentioned in particular a review of the use of deeds of variation to avoid IHT.
A deed of variation can be used to vary a Will after someone’s death thus enabling the beneficiaries of a deceased’s estate to alter the distribution of that estate.

Often the tax implication of the terms of a Will are not considered when the Will is prepared and on an individual’s death it can become clear that IHT will be due that could have been mitigated with better planning and Will drafting.

Currently legislation is in place which facilitates the “redrawing” of a Will to change either who benefits under its terms or the extent to which they benefit. Often this involves redirecting assets to a surviving spouse as assets passing to a spouse on death are exempt from IHT. Alternatively a trust for the surviving spouse might be created to protect the assets for the intended beneficiaries but to make use of the spouse exemption at this point in time.

Another use of a deed of variation is to pass assets down a generation. Where an individual who inherits assets under a Will considers that they do not require the asset and indeed are concerned that the asset will suffer IHT as part of their own estate, they may wish to invoke a deed of variation to the effect that the asset in question instead passes to their children. There is no immediate tax saving in such an arrangement but the Chancellor may have eyes on the IHT falling due on the death of the beneficiary.
While the IHT nil rate band remains frozen the number of estates falling foul of IHT increases and the use of a deed of variation has proved popular in a number of cases.
It will be interesting to read the outcome of the Chancellor’s review, which is promised in the Autumn, and see what, if any, measures are put in place to combat any perceived avoidance.

Until then careful planning is required for executors and beneficiaries alike with the overriding sign off that a carefully drafted tax efficient Will can remove the need to rely on the availability of a deed of variation after the event. Get expert advice at the time your Will is drafted and the issue of IHT planning is not left to chance.

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For More Information Contact:
Julie McMahon
Mobile: 07841 920094
Direct Dial: 0141 530 2021
Email: jmcmahon@gilsongray.co.uk

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The information and opinions contained in this blog are for information only. They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice. Before acting on any of the information contained in this blog, please seek specific advice from Gilson Gray.