Have you inherited recently and plan to share your inheritance with members of your family or donate it to charity?
If so, then consider doing it under a Deed of Variation. This means that the sum of money you give will not be considered as a gift from you, but instead, as varying the terms of the deceased person’s will, or the way that person’s estate passes under the intestacy rules if he/she died without a will. Effectively, you’re basically re-writing the deceased person’s will, or changing the way in which the intestacy rules apply to his estate.
The advantage of doing it through a Deed of Variation is that it can allow you to make a gift, without affecting your taxes and in some situations, reduce the tax payable.
As long as certain formalities are followed, the gift does not affect your own inheritance tax (IHT) position: your annual IHT exemption and your 7 year cumulative ‘clock’ aren’t affected.
The Deed can also provide that the gift is to be effective for capital gains tax (CGT) purposes, which means that your annual CGT exemption (currently £11,000) is not affected by the gift.
It is possible to elect that the Deed is effective for both IHT and CGT or for one or the other. All those affected by the Deed must agree to the variation and must be over 18 years of age, and the deed must be signed within 2 years of the death. If the formalities are not complied with, the variation will not be effective for tax purposes.
Deeds of Variation can also be used in cases where, for example, a family member has been left out of a will unfairly or the intestacy rules, where there is some uncertainty in a will or where the survivor of joint owners wishes retrospectively to ‘sever’ the joint tenancy on a property or other asset so that it doesn’t pass automatically into the survivor’s estate on the death.
Deeds of Variation can also be used to pass gifts to charity where you have inherited and wish to make a donation to a charity organisation of your choice. Because charity donations are exempt from IHT, by signing this deed you can reclaim the IHT paid on the equivalent amount by the estate on the death. By making use of a new relief for charitable gifts, it is possible to ensure that the amount that you, as beneficiary are left with, at the end of the day is higher, even if you have made the increased charitable gift.
This article is intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.
