Deeds of Variation – Useful Planning Tools?

Unless you had occasion to use one for a family member, you probably had never heard of a Deed of Variation until yesterday’s Budget delivered by George Osborne. Thought by some to be a mere political “sideswipe” at the leader of the opposition and alleged misuses of the device in “slightly questionable” Inheritance Tax planning for the family. Thought by others to be well overdue for a thorough overhaul – if not abolition.

A Deed of Variation has been available for many years to beneficiaries and other relatives of recently deceased persons. Essentially it gives them the opportunity to “vary” the terms of a Will in order to make it more tax efficient (amongst other things). So, for example, a son benefiting from his father’s large Estate through his Will, may decide, because his own potential Inheritance Tax liability is already too large, that he would prefer to divert his benefit directly to someone else – e.g. his children. To do this, agreement is required from all the beneficiaries involved and a Deed of Variation requiring the signatures of all beneficiaries concerned is drawn up.

Although once quite widely used, currently its use has become more limited and for at least the last five years, I have heard at our annual SWW conferences, to expect the abolition of this instrument as there have been questions over its illegitimate usage leveled by H.M.R.C. primarily.

As things stand at the moment then, we still have Deeds of Variation available to us. They can be very useful post-first-death planning tools, particularly in married relationships where it is uncertain how much time will elapse between the death of the first spouse and the second and therefore, given the legislation prevailing at the time, how long there is to effectively plan to mitigate any IHT liability.