In his Spring 2015 Budget announcement the Chancellor of the Exchequer stated that Deeds of Variation of Wills are to be reviewed. This is something that has been raised on many previous occasions but now it would appear that this very useful device may be removed or at least seriously curtailed.
A Deed of Variation is often used to divert assets from one beneficiary to another person and thereby achieve a saving in the actual or potential Inheritance Tax liability (IHT). For example, if you leave your estate to your spouse and they decide to pass part of it on immediately to your children but your spouse dies within 7 years of the gift there may be a liability to IHT. This is because their estate will be valued for IHT purposes as if it still included the assets from your estate.
In contrast, if your spouse signs a Deed of Variation diverting that part of your estate to your children the gift to them can be treated as having been made under your Will, thus possibly avoiding an IHT liability. These Deeds must be signed within 2 years from the date of a death to be effective for IHT purposes, and cannot be effective for income tax purposes.
However Deeds of Variation also have other non-tax planning uses. For example if you die without leaving a Will the Laws of Intestacy decide who receives your estate, and your wishes will not be taken into account. The intestacy rules often produce an unexpected outcome, and a Deed of Variation can sometimes be used to put things right.
Even if you have made a Will, since none of know when we will die it is very difficult to ensure that our Will is fully up to date when the time comes. Again a Deed of Variation can help to bring your Will into line with your wishes and circumstances as at the date of your death.
If the Government decide to prohibit or restrict the use of Deeds of Variation to achieve a saving of IHT it is hoped that this will not affect the other non-tax saving uses of these. Nevertheless, the possibility that this will happen means that it is now more important than ever to make a Will and ensure that it still reflects your current circumstances and wishes.
If you have any queries regarding the issues referred to in this article please contact our Private Client Department.