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The end of deeds of variation?


The end of deeds of variation?


The Chancellor George Osborne shocked accountants up and down the country when, during his 2015 Summer Budget statement, he announced a review into deeds of variation (DoV).

The Chancellor made it clear that the review would form part of the government’s anti-avoidance campaign – implying that new restrictions could be placed on the use of DoV to lower inheritance tax (IHT).

What are DoV and how might the review affect your IHT planning?

What are deeds of variation?

A DoV provides beneficiaries of a will with an opportunity to gift a part of their inheritance to another person, contrary to the terms of the will. By doing this, savvy tax planners can reduce the amount of IHT payable on the estate of the deceased. For example, if you stand to inherit more than the current nil-rate band you can use a DoV to gift the amount exceeding the threshold, thereby avoiding an IHT charge.

Some financial planners have pointed out that DoV have a wide range of uses beyond reducing taxes, and any decisions to limit their usage could have wider implications.

DoV can also be used to:

·         correct a mistake or a badly-worded will

·         make a gift to someone left out of the will

·         transfer part of the estate into a trust.

Why have the government launched a review?

The Chancellor has said the review is intended to investigate whether deeds are being improperly used in the tax planning process. It is part of a wider set of policies aimed at limiting tax-avoidance, a cornerstone of the Conservative’s 2015 election manifesto.

The consultation will:

·         investigate how DoV are used for minimising tax

·         find out how often they are used for tax planning

·         establish whether the current rules require changing

·         suggest ways in which DoV could be reformed.

The future

The consultation closed to public responses on 7 October and it is yet to report on its findings. The Chancellor promised that an announcement will be made in the autumn and it is looking increasingly likely that we may have to wait until Autumn Statement 2015 to hear anything definitive.

Though a government crackdown on DoV is a possible outcome of the review, this needn’t mean that you necessarily pay more tax. By planning your IHT strategy carefully and undertaking regular reviews, you shouldn’t need to depend on DoV to minimise your IHT bill.

Our accountants have years of experience limiting our clients’ exposure to IHT - why not give us a call and get professional help with your IHT planning?

Contact us on 01628 631 056 or email geoffk@knightandcompany.co.uk to find out how you can benefit from our personal tax and estate planning services.