Not every inheritance ends up as beneficiaries intended, while most people assume a Will is set in stone, there is a step that can be taken to alter it.
A deed of variation gives beneficiaries the chance to change the distribution of the estate after the event and often with a tax advantage in mind.
What is a deed of variation?
A deed of variation allows a beneficiary to redirect some or all of their inheritance to someone else, whether or not that person was named in the original will or would otherwise benefit under the rules of intestacy.
This can be useful in a range of situations, from passing an inheritance on to children or grandchildren to correcting a will that no longer reflects a family’s circumstances.
Why use one?
The main appeal is tax. Provided a deed of variation is put in place within two years of the date of death, HMRC treats the redirected gift as though it had been made by the deceased rather than the beneficiary.
This means the gift can be made without the usual seven year wait that applies to lifetime gifts and it can also be used to reduce an estate’s inheritance tax liability where reliefs or exemptions have not been fully used.
What are the rules?
A deed of variation can be made before or after the grant of probate, but it must be completed within two years of death for the tax treatment to apply. This deadline cannot be extended, whatever the circumstances.
Any beneficiary whose share is reduced as a result of the variation needs to consent to it and where the change affects the amount of inheritance tax due, a copy must be sent to HMRC within six months of the deed being made.
Once a deed of variation has been made in respect of a particular asset, it cannot be changed again, so it is worth taking the time to get it right first time.
Talk to our team
Deeds of variation can be a valuable planning tool, but they are also time limited and need to be drafted correctly to achieve the intended tax treatment.
If you have recently inherited and are considering how best to use it, please get in touch with our specialists to talk through your options.
