One of the ‘jokes’ included by George Osborne in his Budget yesterday resulted in a review of inheritance tax planning using deeds of variation.
Osborne announced the review with a joke aimed squarely at Labour leader Ed Miliband, who use a deed of variation to alter his father’s will after he died in 1994.
Announcing the review with a jibe at Miliband, Osborne said:
“We look forward to drawing on the particular expertise of the leader of the opposition. Unless, that is, the Labour party has executed its own deed of variation by then.”
A deed of variation is a very effective way of changing the terms of a will after someone has died.
As long as all of the beneficiaries affected by the change agree, a deed of variation can be executed within two years of the date of death.
This can be very effective for inheritance tax planning as it is often used to bypass an entire generation.
For example, the will might leave assets to adult children in their sixties, who are already financially secure, probably with estate values causing inheritance tax concerns.
A deed of variation can be used so the grandchildren or great-grandchildren inherit the assets instead, as they would have been the eventual beneficiaries of the will once their parents or grandparents died, so there is little sense in paying another round of inheritance tax unnecessarily.
As a result of the Budget yesterday, inheritance tax planning using a deed of variation will be reviewed and the rules for their use could be different in the future.
