• March 28, 2024
 Will Deeds of Variation survive the new government?

Will Deeds of Variation survive the new government?

The government has recently announced a consultation into Deeds of Variation over state concerns that the process can be used to wrongly avoid tax.

Deeds of variation have been a longstanding legal device to correct perceived mistakes and out dated clauses within wills. However, they have become scrutinised more and more within recent years for their use as a method of tax avoidance.

As current legislation allows, deeds of variations are used, following a testator’s death, to permit beneficiaries to redirect their inheritance to another party. For instance a father redirecting a gift in favour of his own children, which will then bypass him, meaning he won’t be taxed as part of his estate. It could also be used to pass on a benefit to a grandchild who was born between the last time the will was updated and the testator’s passing. This must be done within two years of the death and as long as all beneficiaries made worse off by the changes agree.

However, George Osbourne has announced that deeds of variation are currently under review, with a report expected in autumn 2015. During the budget he announced:

“I can also tell the House that we will conduct a review on the avoidance of inheritance tax through the use of deeds of variation. It will report by the autumn.”

It appears that the government believes that because the device helps save on inheritance tax, tackling this perceived issue is necessary to put into practice their ambitions to cut down on tax avoidance.

The use of deeds of variation to avoid tax became prominent in the media recently when allegations arose that former Labour Leader Ed Miliband’s family used a deed of variation to reduce the tax paid on the father’s estate following his death. It was reported that contingencies to split the estates ownership were made in order to cut the amount of inheritance tax payable.

It is important that all clients are made aware that deeds of variation should not be relied on as determining how the estate should be distributed for tax purposes. These potential upcoming changes should serve as a reminder to everyone to consider estate planning and ensure that their will is up to date and as tax efficient as possible, in order to avoid the need of a deed of variation after death.

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