Deed of Variation or Post Death Variation of Will or Intestacy
Links to pages on different aspects of deeds of variation are below the main text of this page. You are welcome to give as a quick ring on 01323 406 299 (or use the contact form below) to see if a deed of variation might be worthwhile. It is a rather technical subject! Bear in mind that it is essential that any possible claims against the estate are considered in order to avoid future complications: we won’t know about them unless you tell us!
What is the effect of a Post Death Deed of Variation?
A Deed (or post death) Variation or post death has the effect of writing the wording of the Deed into the terms of the deceased’s Will or the intestacy (no valid Will) for tax or other
reasons. So they are effective, retrospectively, to the time of death. The estate is then charged Inheritance Tax based on how the deed has amended the original recipients.
The beneficiaries and trustees of a deceased’s estate may wish to rearrange the distribution of the assets for a number of reasons. The main ones being either to redirect assets to those who are less well provided for or to save tax, in particular Inheritance Tax. To make the desired tax saving that a variation may be able to offer, the beneficiaries must complete the post death variation within two years of the deceased’s death.
Contact us to discuss Deeds of Variation and whether it is right in the circumstances – some are totally unnecessary and of no real benefit! Obviously, we can also help with obtaining probate in the first place. Ideally the deed would be organised at the same time as probate, but it isn’t crucial (though the time limits are).
If the deed of variation results in more Inheritance Tax being payable by the estate then the personal representatives (executors) dealing with the estate must also join in this statement. The executors can only refuse to do so if there are not enough assets to meet the extra liability.
If a statement to this effect is not given, the redirection of assets will be classed as a Potentially Exempt Transfer (PET) by the beneficiary or a transfer of value on which further Inheritance Tax may be payable at once. (A PET is a potentially taxable gift. No immediate tax, but extra IHT could become payable in certain circumstances.)
Deed or Post Death Variation and Capital Gains Tax.
The situation for Capital Gains Tax is similar. A special statement must be made within the deed of variation. Although no CGT is payable on death, the inclusion of such a statement prevents the redirection of assets being taken as a disposal by the person who would otherwise have received them. Because of the necessity to include a statement as to the writing back effect it is entirely possible to use this aspect only where it is beneficial.
If a statement is not included as far as IHT is concerned, then the property is treated as having passed to the original beneficiary. The beneficiary is then classed as making a gift (a potentially exempt transfer or PET.) That means that if he or she survives for seven years then the transfer will normally escape more tax. However, if she/he dies within the seven year period then (extra) IHT will become chargeable. The effect of using the statement within the deed of variation depends on several factors such as whether the original or new beneficiaries are exempt.
What can be varied in a Deed of Variation?
It is possible to vary ‘any of the dispositions (whether effected by Will, under the law about intestacy or otherwise) of the property comprised in the estate immediately before death’ (IHTA 1984 s142). Deeds of Variation can even be used where an asset passes outside of the estate. For example; where property is held as joint tenants and has passed automatically to the surviving co-owner then the co-owner can choose to vary this effect by carrying out a retrospective severance. The effect of this severance is that the whole property does not automatically pass to the survivor. It may be better for the deceased share of the property to go into trust for example.
There are assets which cannot be the subject of a deed of variation. These include any property in which the deceased had an “interest in possession.” Also property to which the deceased was classed as having an interest by the application of the “reservation of benefit rules”. Both of these may attract inheritance tax on death. But they are specifically excluded from being the subject of a post death variation by section 142. In effect, they are the result of Inheritance Tax planning not being up to date at the time of death. Our Tax barrister does offer an Inheritance Tax Planning service.
Income tax and deeds of variation.
There are no specific income tax provisions equal to the Inheritance Tax and Capital Gains Tax provisions. This means that income received by the original beneficiary before the deed of variation will be taxed as income of the original beneficiary even if the entire income received since the date of death is given up.
Contact us if you feel a variation might be right for you – an initial chat is free. Please remember that we are a business, and whilst we are always happy to have a brief exploratory chat, we do charge (modestly) for our time. For details of our fees for deeds of variation click.
- Deeds of Family Arrangement (essentially another name for deeds of variation.)
- Charitable Deeds – a great way to give.
- Variation of Intestacy – when there is no valid last Will and testament.