What is a Deed of Variation?
A Deed of Variation is a document that allows a beneficiary to redirect where their inheritance should pass as though the person who died had made that provision in the first place. A Deed of Variation can be used to vary a Will or the Intestacy Rules.
For example, a parent might wish to pass their inheritance on to their children. Whilst it is possible for the parent to simply gift all or part of the inheritance, but in doing so they would then have to survive 7 years from the date of the gift for it to fall out of their estate for inheritance tax purposes.
However, if the parent used a Deed of Variation to pass this money on, then there would be no requirement to survive the next 7 years, as the gift is treated as though the deceased made the gift directly to the child.
Deeds of Variation are often tax efficient ways of re-distributing wealth for both inheritance tax and capital gains tax purposes.
A Deed of Variation must:
- Be in writing.
- Be made by the individual who benefits or would benefit under the Will or intestacy rules and who is giving up that benefit.
- Be made within two years of the deceased’s death.
- Indicate clearly:
- which disposition (that is, the benefit inherited) is the subject of the variation; and
- that the variation changes the destination of the disposition (that is, redirects it so that another beneficiary benefits from it).
- Contain a statement of intent specifying that the beneficiary wants section 142(1) of IHTA 1984 and section 62(6) of TCGA 1992 to apply. This wording is included to ensure that the redistribution is passed on in the most tax efficient way in relation to inheritance tax and capital gains tax.
- Not be made for consideration in money or money’s worth from a source outside the estate.
Do I Need A Deed Of Variation?
This very much depends on your individual circumstances and the wishes of any beneficiaries under the Will or laws of intestacy. Therefore, it is essential that you get advice from a legal professional.
A Deed of Variation can only be made once and so it is very important that you are happy with your decision.
If you would like more information about a Deed of Variation, please contact me at c.day@timms-law.com or on 01283 214 231.
