A Deed of Variation is a device that is available to the beneficiary of a deceased’s estate who wishes to alter their entitlement. It works by allowing the beneficiary to rearrange or redirect all or some of the entitlement that came to him originally from the Will or under the intestacy rules.
A beneficiary may wish to vary his entitlement for a number of reasons such as to provide for others with a greater need for funds or to save himself or the estate tax.
Under current legislation, the parties to the Deed of Variation can state that the redirection is treated for Inheritance Tax (IHT) and Capital Gains Tax (CGT) purposes as if it had been part of the Will. This means that the redirection would not then be a transfer between beneficiaries which would otherwise be taxable as a lifetime gift. This has the effect of adding retrospective estate planning provisions into a Will.
HM Revenue and Customs (HMRC) launched the review of the DOV on the 15th July 2015. With limited information about how Deeds of Variation are used other than for gaining a tax advantage, the first stage of the review is a general call for evidence.
The HMRC have created an online questionnaire for completion by individuals and professionals who have experience of using a Deed of Variation or those who may be considering using one. The questionnaire is designed to discover why and how often Deeds of Variation are used for tax purposes.
Once the replies have been analysed, HMRC will decide whether any changes need to be made to the present tax rules.
The call for evidence will run for 12 weeks. The deadline for receiving responses is 7th October 2015.
If you wish to take part in the review the questionnaire can be found at https://www.surveymonkey.com/r/T6JG2DY
If you have any questions as to how these changes may affect you or you wish to review your Will, please contact our Wills, Trusts and Probate team on 02392 296296.