A Will is used to express how an individual would like their estate to be distributed after they have passed away. Sometimes a Will is created and the person at the time didn’t realise the consequences due to their wishes, for example tax consequences. If this circumstance arises, the deceased wishes can be altered through a Deed of Variation.
A Deed of Variation made within 2 years of the date of death will apply for Inheritance Tax purposes as if it were always in place. However, as it requires the consent of all beneficiaries, a Deed of Variation typically requires all beneficiaries to be over the age of 18.
Where the youngest beneficiary attains the age of 18 within the 2 year period, it may be possible to enter into a Deed of Variation, even though they were not 18 at the date of death.
This could be attractive in cases such as where there had been an incorrect assumption that Business Property Relief would be available, which resulted in an unintended inheritance tax charge which would not be triggered by a gift to a surviving spouse.
Where there is a possibility of undue influence on the 18 year old then the Variation may be challenged by HMRC and therefore the young adult should be advised to take separate legal advice in these circumstances.
Even without any suggestion of undue influence, HMRC practice is to ask about the circumstances where a deed of variation redirects assets to a spouse, to try to establish whether there is any intention for the spouse (or the trustees of a trust in which the spouse has a life interest) to pass the assets back to those making the variation or otherwise give consideration that would prevent the variation from qualifying for retrospective inheritance tax (IHT) treatment under section 142 of IHTA 1984.
As every situation is different, it will not always be a suitable route forwards, but it may help some families.
If you found this article helpful we would recommed reading, ‘Tax and Avoidance and Deeds of Variation‘.Talk to our legal team
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