What is a deed of variation – and why it could change your financial future


At Continuum we understand the importance in planning to reduce your Inheritance Tax (IHT) – the 40% death duty that is deducted from your estate once it passes the threshold of £325,000. (Currently the individual nil rate band is £325,000. It may be possible for a surviving spouse or civil partner to inherit any unused tax free allowance).

House price inflation means that more of us are caught by IHT every year. Current forecasts predict the annual haul by HMRC will continue to rise and reach £7bn by 2023.  The tax net originally designed for the rich is now catching ordinary people.

But there are two pieces of good news. The first is that there are some important concessions; families can use the residence nil rate band, which exempts an additional £150,000 from taxation, as per the 2019/20 tax year, if the family home is passed on to direct descendants.

The second is that there are many ways to legally avoid handing over almost half your family fortune to the taxman.

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At Continuum we can advise on ways to preserve your wealth with estate planning – a service designed to keep your money out of reach of the taxman, and ensure that the pain of loss is not made worse by financial misery. The sooner we start estate planning, the more effective it can be – why not call us today?

The problem is that almost all of these solutions need to be put in place before the death of the person making the bequest, and in some cases several years before. Once you are gone, so are the chances to keep your money safe from IHT.

But there can be one important exception. A deed of variation.

What exactly is a deed of variation?

The basic reason for writing a Will is to make it clear what you want to happen to your wealth after you die. In general, most people are content to follow your wishes.

However, if a Will is not written with the principles of estate planning and the need to reduce IHT liability in mind, following it could simply mean that the largest beneficiary is the taxman.

A deed of variation could possibly allow the beneficiaries to rewrite some key sections of a Will (up to two years after the death of the testator) that appears to leave too much to HMRC, although of course, they cannot use it to simply divert bequests made to others to themselves.

Instead, a deed of variation lets you divert money that would have gone to yourself – and have to be shared with the taxman – to others. By putting the money in trust, the tax position can change dramatically.

What are the rules?

Provided that the other beneficiaries agree, you can redirect your inheritance to anyone you wish, even if they are not named in the deceased’s will.

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Things can get complicated when bequests and tax rules are both involved. At Continuum we can help you through the complication – book a free consultation now.

The rules on deed of variation allow you to make alterations to someone’s final wishes within two years of their death, as long as you can argue it would have been in line with their actual wishes. Any deed of variation must be drawn up within 24 months of the death of the deceased and must be signed by all the executors and beneficiaries to be valid.

A deed of variation can even be used if there is no Will left behind, and the deceased’s estate is therefore to be distributed under intestacy rules.

Do you need to find out more?

A deed of variation needs to be written with the help of your solicitor as well as financial experts who understand the tax position.

At Continuum, we have the expertise, and we would be pleased to help you draw up a deed. But there are many other ways that we can help you preserve your family’s wealth by minimising your IHT liabilities.

To find out more about our estate planning services and what they could mean to you, simply call us.

The information contained in this article is based on the opinion of Continuum. The tax rates referred to are based on our understanding of current HMRC rates. Taxation is subject to individual client circumstances. You should seek independent financial advice before embarking on any course of action.

The Financial Conduct Authority does not regulate Estate Planning, Wills, tax and trust advice.

Reference:

https://www.telegraph.co.uk/tax/news/new-tax-year-2019-changes-coming-effect-today-income-allowance/

 

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