If you find yourself liable to pay Inheritance Tax following the death of a loved one, you may wrongly presume that there is no option but to pay the tax man the full amount that he is owed.
However, by using a Deed of Variation, it can often be possible to offset a portion of this tax burden.
A Deed of Variation is a legal tool which can be used by any adult beneficiary, regardless of whether an inheritance is left in a Will or through intestacy.
It is not, as many people believe, a rewrite of a Will or a ‘get out’ of the usual rules of intestacy.
A Deed of Variation allows either part or all of the deceased’s estate to be passed from one beneficiary to another, usually as a gift, although it can also involve the sale or exchange of respective interests.
As laid down in Section 142 of Inheritance Tax Act 1984 and Sections 62(6) to (10) of Taxation of Chargeable Gains Act 1992, the use of a Deed of Variation means that the moving of assets carries with it the ability to better plan tax to reduce a person’s tax liability.
The legislation permits the original beneficiary, specifically for tax purposes, to elect a new beneficiary. He or she will, to all intent and purpose, be deemed to have inherited these assets from the deceased, rather than as a gift from the original beneficiary. This process must take place within two years of the death to have a tax benefit and it is important to note that this does not apply to Income Tax.
The rules surrounding Inheritance Tax and the use of Deeds of Variation are complex, confusing and ever-changing and it is important to seek specialist IHT planning advice to suit your specific circumstances. To find out how the experts at Moore Thompson can help you today, or in the event of any surprise IHT changes in the near future, please contact us.