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Budget announcement on changes to deeds of variation

Chancellor George Osborne announced in last week’s budget that the government is looking to raise £3.1 billion by increasing its efforts to deal with tax avoidance.

Last updated on March 31st, 2015 at 10:04 am

As a result, he has announced a review of the use of deeds of variation as a method of avoiding inheritance tax.

What are ‘deeds of variation’?

A deed of variation is a document which can be used by the beneficiary of a will to redirect an inheritance to another person, such as a child, sibling or charity. Provided the deed complies with certain conditions, the redirected inheritance is treated as if it were made by the deceased.

What does that mean for me?

Put simply, if you are likely to pass on an estate valued at more than the current IHT threshold (£325,000), you may not want to add to this as it will mean that your beneficiaries will pay 40% tax on anything above that amount – they could end up paying 40% tax on an inheritance on which you have already paid tax. Or, if your estate is valued at under the IHT threshold, you may want your beneficiaries to be protected from paying any IHT at all.

How do I get one?

Deeds of variation can be complex and need to be made by a lawyer who fully understands them, as there are rules. For example, the deed must be made within 2 years of the deceased’s death; it must include the correct tax declarations; no cash bribes must be given to the beneficiaries; each beneficiary can only give away his share of the inheritance; the destination of an asset cannot be changed more than once and everyone involved must agree and sign the deed.

What do the experts think?

David Coffey, Probate Lawyer At Graysons Solicitors

David Coffey, head of Graysons wills and probate department says “It is a great shame that the government is considering this move as deeds of variation can be important for reasons other than the saving of IHT, for example to benefit the next generation and preserve the family’s inheritance for future generations.

No time indications of any changes have been given yet, but it looks like time might be running out, so, if you are considering a deed of variation as a method of IHT reduction – or any type of inheritance protection – the sooner you act, the better.”

David can be contacted at Graysons on 0114 272 9184 or by email at david.coffey@graysons.co.uk

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