Inheritance Tax Planning: Deeds of Variation

Tax Planning for receiving inheritance. 

When faced with the loss of a loved one, as a beneficiary you may not automatically think about inheritance tax planning in respect of your own affairs. It is something that it is important to review, particularly if you are coming into a substantial inheritance.

Varying what you receive to avoid excess tax.

When someone passes away, an adult beneficiary can vary the amount they receive under a Deed of Variation to enable gifts to be given to others that perhaps are not included in the distribution under the Will, for example the beneficiary’s own children or grandchildren. A Deed of Variation enables gifts from the original beneficiary’s entitlement to the new beneficiaries as if the legacies were made in the original Will.

From a tax planning perspective, this means that the gifts are not made as lifetime gifts by the original beneficiary. It also means that the original beneficiary’s estate is not enlarged by the whole amount, nor do they need to look at annual gifting in order to reduce the value of their estate over time.

Considering tax implications for those you want to inherit from your Will.

For a person writing their Will (the Testator), it is sometimes tricky as to how to leave your estate if you have children and grandchildren, for example. If you do not have grandchildren from each child or if you have differing numbers of grandchildren from each child, then you may struggle to know how best to leave your estate. It is then often decided to leave your estate equally between the children and then let the children decide. This is where the Deed of Variation comes into its own, as the children can then decide at such time as the person has passed away as to the amount that each of their own children or perhaps grandchildren should receive.

The time limit for a Deed of Variation to be carried out.

A Deed of Variation must be carried out within two years of the Testator passing away to vary an adult beneficiary’s entitlement.

How we can help with Variation, Wills and Tax Planning.

If you are currently dealing with an estate or a beneficiary of an estate and wish to discuss deeds of variation then please do not hesitate to get in touch with our team on 01761 414646, email us or send an enquiry through our website.

Alternatively, you may wish to come to our Free Legal Advice Surgery which we run every Thursday from 5pm – 6pm at our Midsomer Norton office, near Bath. No appointment necessary, just turn up.

Laura Ablett is a full member of the Society of Trust and Estate Practitioners (STEP).