When watching the Government’s 2015 budget unfold from an inheritance protection viewpoint, one of the more significant statements made by the Chancellor of the Exchequer related to a proposed review of ‘deeds of variation’ when used by the beneficiaries of a deceased individuals’ estate for tax-saving purposes.
A deed of variation currently provides a legitimate mechanism for the beneficiary or beneficiaries of the estate of a deceased individual to redirect assets which they themselves would otherwise receive. Whilst this may just be to provide for others in greater need, often the more significant reason for their use is to reduce the amount of inheritance and capital gains tax which might otherwise be payable. Provided that such a variation is made within two years of the deceased’s death, such a variation would have retrospective effect for tax purposes. Tax savings can be made in a number of ways, for example by giving additional assets to beneficiaries who are exempt from inheritance tax (such as a charity) or by redirecting specific assets which already qualified for tax relief (such as agricultural property or business property) from already-exempt beneficiaries to non-exempt beneficiaries.
It is perhaps surprising, in the lead up to a General Election, that the Government would announce a review which, if actioned, might actually increase the number of estates which remain liable to inheritance tax as opposed to reduce it. The reference to this review in the published Budget document itself is just a lone sentence, but any changes which may result from it would have a profound and wide-reaching impact.