Deeds of variation remain unchanged

Why use a Deed of Variation - It can set up assets to save considerable tax.

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Deeds of variation remain unchanged

Following the revelation that Ed Miliband had been “accused” of using perfectly legal means of avoiding IHT by using a deed of variation – that moved ownership of some of the family home into his and his brother’s names – the government decided to review these arrangements.They had a call for a review of the use of Deeds of Variation for tax avoidance purposes. The aim of the review was to:

  • explore the differing circumstances in which they were used for tax avoidance,
  • develop a fuller understanding as to the frequency with which these type of plans were used,
  • examine in more depth how the current tax provisions worked, and
  • establish what changes, if any, should be made to deeds of variation.

It has now been announced that ‘Following the review announced at March Budget 2015, the government has decided that it currently will not introduce new restrictions on how deeds of variation can be used for tax purposes. However, they will continue to monitor their use.’ This really comes as no great surprise as since the transferable nil rate band was introduced in October 2007, the advantages of a variation have been limited. Before then they were widely used to set up discretionary will trusts ensuring that both nil rate bands of a couple were utilised. That is not to say they are no longer useful; they still have value to wealthy families in ‘generation skipping’ and repairing perceived injustices in the legacies, amongst other things. For instance if you have a potential inheritance tax liability it is possible to use a deed of variation to adjust the deceased persons estate to place all funds into a discretionary trust. This trust can now lend money to you which means you have use of the money without it falling into your estate. However, care needs to be taken on this type of planning to ensure that other IHT rules are not breached.Please email us if we can help in this area.

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