Deeds of Variation Budget Announcement
In his last budget George Osbourne announced a review of Deeds of Variation and their use in order to mitigate inheritance tax.
“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.”
A Deed of Variation is a way of altering a will after the testator has died. Common uses of a variation include changing the beneficiaries in a will from children to grandchildren. As people live longer and often don’t die until they are maybe in their 90’s, their children in turn are much older.
Often bypassing the children and leaving assets to grandchildren is more tax efficient. As the direct children of the testator may be in thier 60’s and receiving their parents assets could leave their own children with an inheritance tax bill when they pass away.
Why don’t the testators children just give the money to their children?
Making a large gift in later life carries a risk. If you make a gift of a substantial amount of money and fail to live for another 7 years then the gift you made could now be liable for inheritance tax.
Using a Deed of Variation
A deed of variation can only be used if all the affected beneficiaries agree. Your solicitor will need to obtain written consent from all of the affected beneficiaries and lay executors. You have to have the documents in place within 2 years of the date of death in order for the variation to be effective.
Will a deed of variation affect my probate fees?
Possibly yes depending on who you choose to provide your probate service. If you know in advance that you can benefit from a deed of variation then its always best practice to make sure the probate quote you receive includes a price for the deed. Unfortunately if you are unaware that a deed of variation can be used to mitigate future tax; at the time you instruct a probate firm then the practitioner may present the deed of variation as an option later on in the administration. This can often mean the price could increase as it may be bundled with further advice. For example the person carrying out the estate administration advises you mid way through the transaction that they can mitigate inheritance tax and save you £40,000. Then a £1500.00 deed of variation seems good value for money. However when quoted upfront deeds of variation can cost as little as £200 – £350.
If of course you use a fixed fee probate provider like Final Duties then these costs are outlined in advance and don’t alter depending on the saving made on behalf of the beneficiaries.