One of the less noticed announcements in George Osborne’s pre-election budget yesterday was a review of the use of deeds of variation.  Not the most well-known of topics - but these have, for many years, been an important weapon in the armoury of solicitors specialising in saving people inheritance tax.  They are used to amend the terms of a Will, or intestacy, after a person has died. (Not just for tax purposes I might add - they are also used to ensure estates pass as families wish, where there is no will or where circumstances have changed).  Sounds incredible? Well, yes it does, but it is perfectly legal and, in certain circumstances, can save a huge amount of money. 

For example, let’s say there are two elderly sisters – Joan and Mary.  Joan is a spinster and Mary a widow with one son and in poor health.  Joan has just died and left everything to Mary in her will. Mary’s will, not surprisingly, leaves everything to her son.  The house and savings she has inherited from Joan push the value of all she owns over the inheritance tax limit, and therefore on her death there will now be inheritance tax to pay.  However, by executing a deed of variation in Joan’s estate, Mary can re-direct Joan’s assets to her son.  This means they are now treated as though Joan had left everything to him in the first place. The result – Mary’s assets no longer exceed the inheritance tax limit, and on her death there is no tax to pay.  

It was suggested that this review was only mentioned in the budget to take a swipe at the ‘holier than thou’ Ed Miliband, whose late father’s estate apparently benefitted from this some years ago.  Could that possibly be true?  Will this long-standing and little-known loophole now come to an end?  Only time will tell.  Will this review affect the way you plan for your family’s future? That may be something for you to consider.  

Recent research has shown that Barnet and Harrow are the two areas of the country containing the biggest number of estates paying inheritance tax.  For inheritance tax advice tailored to your specific circumstances write to me now at timesquestions@anvoner.co.uk and I shall do my best to put your mind at rest.