Airdrie – Cumbernauld – Motherwell – Bellshill – Coatbridge – Wishaw
Hamilton Ross
Solicitors and notaries
Serving Clients in Lanarkshire for over 15 Years.

Deeds of Variation

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.

Current 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. This often 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. Furthermore, a deed of variation may also be used to create a pilot trust to receive lump sum death benefits from a pension scheme.

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.

Most people would like to deal with the issue of Inheritance Tax Planning and not return to the issue, confident that they have found the most efficient way to deal with their estate. Unfortunately, although extremely useful, a Deed of Variation should not be relied upon as part of an individual’s estate planning. It may be that the effectiveness is reduced by the Government in the future. At present, however, they do offer an effective way of changing a will after death.

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. He delivered his Autumn Statement on 25th November 2015 and focused on economic and national security. Thus it has now been announced that ‘Following the review announced at March Budget 2015, the government has decided that it currently will not introduce new restrictions on how deeds of variation can be used for tax purposes. However, they will continue to monitor their use.’

Author: Saira Ali, LLB, currently studying for the Diploma in Legal Practice

The views expressed are those of the author and do not necessarily reflect the views of the firm.


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