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Deeds of variation are coming under scrutiny as a tax-avoidance measure, so is the clock ticking for this useful retrospective estate planning tool?

The Chancellor in the last budget stated they would be reviewed and anti-tax avoidance is a key cross-party issue in this General Election year.

Aside from the inheritance tax (IHT) benefit that deeds of variation can provide, they also allow beneficiaries to reorganise their inheritances at potentially no real loss to the Exchequer, but of real benefit to families and younger generations.

The advantage of these deeds is that a beneficiary can redirect their inheritance to other people or charities and it will be deemed that the deceased made the redirected gift, rather than the beneficiary. This means there is no requirement for the person allowing the redirection to survive the gift by seven years in order for it to fall out of account of their own estate and therefore not be subject to IHT

For example, where a parent inherits under a deceased child’s estate, the parent may have no need for a windfall inheritance. The funds would swell their own estate giving rise to possible IHT charges on their own death or, if the parent was in a care home, be swallowed up in care charges.

Using a deed of variation, the parent could redirect the funds to a younger generation, who could really benefit from the money. The IHT position on the estate of the deceased child is not changed, but the funds have efficiently moved on to those who have more use for the funds.

In order to have this effect, the deed must be signed within two years of the date of death and be drafted to contain a specific statement to incorporate the desired IHT effect. It is also possible to vary an entitlement into a trust, if desired.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.