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WILLs & Powers of Attorney
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PROBATE AND TRUST
020 7046 6078
Apr. 28, 2015

How to save on tax using a Deed of Variation

Many people will spend their entire lifetime carefully putting away money to provide for the generations that come after them. So it can be very upsetting to see 40% of the money that a loved one worked so hard to leave for their beneficiaries taken away in taxes. That is why more and more people are choosing to use a Deed of Variation in order to alter the will after a person’s death to share out the beneficiaries’ entitlements further and avoid large inheritance tax charges.

What is a Deed of Variation

A Deed of Variation can be used by a beneficiary to redirect their inheritance to another person. Many people will redirect money to their children or to a charity using a Deed of Variation.

When a Deed of Variation is granted it is treated as though the variation was made to the will by the deceased person and not by the beneficiary.
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How can the deed help to reduce tax on inheritance?

budget-2015

To understand how a Deed of Variation will help you to save on inheritance tax it is important to first understand how inheritance tax works.

There is an inheritance tax threshold of £325,000. Anything inherited up to this amount is tax free, however once this threshold is exceeded, all amounts over the threshold will be charged at a rate of 40%.

Gifts made to a charity are exempt of inheritance tax and making a donation to charity can reduce the amount of tax that is due.

If the beneficiary named in the deceased’s will pays 40% inheritance tax on the gift, and then this beneficiary passes away with an estate valued at over £325,000 as well, then this money will be subject to another 40% tax. It is this kind of situation that may prompt a beneficiary to take out a Deed of Variation to renounce his or her share to a child, charity or other beneficiary to save on tax.

It is also beneficial that the amendments made to the will by the Deed of Variation are treated as though they have been made by the deceased not the beneficiary. This means that if the beneficiary were to pass away within 7 years of the redirection then the gift would not be bought back to their estate for taxation.

What are the requirements of the deed?

If you want to use a Deed of Variation in order to reduce the amount of tax that is paid from the inheritance then there are a few rules that will apply.

  • Firstly, the deed must be completed within two years of the date of the deceased’s death
  • You must include the correct tax declarations on the deed
  • There must not have been any cash given as a bribe to any beneficiary that enters the deed
  • You cannot change the destination of an asset more than once
  • Everyone involved in or may be affected by the alteration must agree and sign the deed

We provide various services to help with obtaining a Deed of Variation as well as general estate administration. For more information call 01722 410009 to speak to our Specialist or complete our no obligation contact form.

By accepting free advice you are under no obligation to use our services