Press release: Government would be mistaken to target bereaved families as part of a crackdown on tax avoidance

A Deed of Variation enables beneficiaries of an estate, where all are in agreement, to alter the distribution of that estate within two years of the deceased’s death. The effect of the arrangement is to treat the revised distribution of the estate as having been made by the deceased. While a Deed of Variation can be used to reduce the amount of Inheritance or Capital Gains Tax payable, it can also be used to recognise changes in circumstances since a Will was written, to provide for someone who was left out of a Will, to move the deceased’s assets into a trust or to clear up any uncertainty over the Will.

Paul Hill, Chair of the ATT’s Technical Steering Group, said:

“It would be a mistake for HMRC to assume that Deeds of Variation are predominantly used to reduce tax. This would be to ignore their significance in helping people to deal with the death of a loved one in an orderly way, often in anguished circumstances.

“Abolition of the facility would cause bereaved families serious worries where a Will is found to be defective or where a death suddenly occurs and there is either no Will or the most recent Will does not account for a change in family circumstances.”

The ATT warned that it could be the less well-off families who would suffer the most from any restriction or scrapping of Deeds of Variation, as more wealthy families could choose to settle their estates on discretionary Will trusts² to enable their trustees to obtain the same outcome that are currently available to all through a Deed of Variation.

Paul Hill added:

“HMRC statistics show that in 2012/13 very few UK estates (approximately 3.1 per cent of all deaths) were subject to Inheritance Tax3. This suggests that an even smaller percentage of all Deeds of Variations produced a tax advantage and supports the conclusion that they are an important facility in achieving an appropriate distribution of a deceased’s estate – very often with no tax implications at all.”

Notes for editors

1. Under a discretionary Will trust assets are left in trust for beneficiaries whose actual inheritance is at the discretion of the trustees. They do not have a definitive amount of entitlement nor a date of absolute entitlement. With such a trust,  section 144 IHTA 1984, can be used to close down a trust within two years of the deceased’s death with the purpose of appointing assets out to the discretionary beneficiaries and treating the distributions as if they were made via the deceased’s Will, offering the same advantages as a Deed of Variation.
2. HMRC statistics published on 30 July 2015 (set out in ATT’s submission).
3. The ATT has given HMRC three real-life cases where a Deed of Variation was used for reasons clearly not driven by tax advantages:

A client had prepared a Will leaving her share of her main residence to her children. When the client passed away and the Will was read, it was discovered that the property was still owned as joint tenants with the surviving spouse. A  Deed of Variation was used to sever the joint tenancy so that the client’s original intention, by her Will, could be honoured.

 A client had been married for more than a decade and was in the process of updating his Will. The existing Will has been written in contemplation of his marriage but only made modest provision for his spouse, which the client now wanted to address. The client died suddenly of a heart attack before he could sign the updated Will. A Deed of Variation was used to ensure the deceased’s known wishes could be carried out by his family.

 

A vulnerable person with no surviving issue and substantial funds held in the Court of Protection (for his benefit after a successful medical negligence claim) died intestate, The Deed of Variation was arranged in order to include provision for his siblings and his parents rather than his surviving parents alone as all had loved and cared for him during his difficult lifetime.