Published by: Steven Hamilton

A Deed of Variation - an effective tool for estate planning.

Last year we reported that in the March Budget, the Chancellor George Osborne announced that deeds of variation would be reviewed as part of efforts to tackle tax avoidance. However, following the end of the consultation process, the conclusion is that the government will not introduce new restrictions on how deeds of variation can be used for tax purposes but will continue to monitor their use. This is extremely good news and means that deeds of variation remain an effective tool for estate planning.

What is a Deed of Variation?

It is a document that can be entered into by a beneficiary of a deceased person's estate to give away some or all of what he is entitled to receive from the estate. A deed of variation can be used to restructure bequests to ensure the best distribution of the estate amongst the wider members of the family and also benefit from tax advantages if the deed is signed within two years of the death.

How can a deed of variation be of benefit?

Many people write a Will and then forget about it until something prompts them to make a change, which is fine as it needn’t be uppermost in our mind all the time. However, over time things change and it is not uncommon to find that a Will is out of date or no longer fit for purpose when the testator dies. A beneficiary may therefore want to redirect assets for a number of reasons, including:

  • to provide for others who may be in greater need of funds; and
  • to save tax by passing on assets to a beneficiary who is exempt from inheritance tax (IHT), such as a charity, or by redirecting assets to maximise IHT relief which is available for certain business or agricultural assets.

A deed of variation can therefore be of great benefit and has several advantages. It allows you to control the redirection of all / part of your interest in the estate. It can have a retrospective effect for IHT and capital gains tax that may otherwise arise and therefore provides a tax planning opportunity for you.

What if there is no Will?

The estate will be divided in accordance with the intestacy rules. These rules are set down by the law which determines who benefits from an estate when there is no Will. Even if your entitlement derives from an intestacy, the same principles apply and so you are still able to use a deed of variation to redirect part or all of your inheritance.