Could you save tax by making a Deed of Variation?
Losing someone is hard, and sorting an estate can feel harder. Sometimes, though, the outcome does not reflect the family’s wishes. Fortunately, there is a helpful option worth exploring. So, could you save tax by making a Deed of Variation? Below, we explain the essentials clearly.
What a Deed of Variation is
Firstly, a Deed of Variation lets beneficiaries change how inherited assets pass on. Indeed, people also call it a deed of family arrangement. As a result, families gain useful flexibility after a death.
Moreover, this arrangement allows beneficiaries to redirect all or part of their inheritance. For example, it can be used to:
- Pass assets to another family member.
- Change who receives certain assets.
- Place assets into a trust.
However, any beneficiary who receives less must agree to the change first.
How the tax treatment works
Importantly, the tax rules can work in your favour. Where the conditions are met, HMRC treats the variation specially. Essentially, it treats the change as made by the person who died.
Consequently, the redirected assets pass directly from the deceased. Therefore, they do not pass from the original beneficiary instead. As a result, this can help with Inheritance Tax planning. In addition, it may bring Capital Gains Tax benefits too.
Meeting the key conditions
Nevertheless, strict rules apply here. To work for tax purposes, the variation must meet several conditions, including:
- You must normally make it within two years of the death.
- It must be in writing.
- It must contain the required statements confirming the tax rules apply.
- All affected beneficiaries must agree to the changes.
Important points to remember
However, do proceed carefully. Indeed, you cannot use this simply to avoid tax after receiving an inheritance. Therefore, always weigh the wider tax and family implications first. Ultimately, careful planning helps you make the right choice.
Contact us today, and let us help you explore whether this option suits your family.
