No Will…but there is a Way !

What is deed variation and how can it help reduce inheritance tax?

Amazingly over 60% of people in the UK don’t have a Will in place. Poor estate planning could result in the Government taking a sizable chunk out of the money you leave your loved ones. Estates liable for inheritance tax (IHT) must pay 40% before the remainder can be passed on, leaving many of us with a sour taste in the mouth. There is however, a way to ‘beat the taxman’ from beyond the grave. A deed of variation (DOV) is a legal document that allows the beneficiaries of an estate to make changes to the will, in the name of the deceased, after their death. What this means, is that changes can be made to make it more tax-efficient.

In the case that you are about to inherit a windfall that will take your own estate over £325,000 – the personal allowance above which 40% IHT applies on your death – you can alter the deceased’s will so that money you stand to inherit passes directly to other beneficiaries, reducing or eliminating the amount of tax you would otherwise have to pay later.

So, how does inheritance tax work?

Upon their death, each individual is taxed at a rate of 40% on all their assets above a threshold of £325,000. The following things are subject to the tax:

  • Cash
  • Investments
  • Property
  • Vehicles
  • Life insurance payouts

Main residence for “family home allowance” is in the process of being phased in until 2020, applying to a family home going to direct descendants only. Ultimately, this means that married couples will be able to use their combined allowances to pass estates worth up to £1m onto their direct descendants.

What are the rules?

  • Any deed of variation must be drawn up within 24 months of the death of the deceased, and must be signed by all the executors and beneficiaries of the estate to be valid.
  • A DOV is separate from a grant of probate – the legal document that allows you to gather up and distribute the assets of the deceased – and can be obtained before or after probate is granted.
  • There are no formal documents to apply for; you can simply write a letter explaining the changes you wish to make. However, you must ensure the letter meets certain conditions – Her Majesty’s Revenues and Customs provides a checklist.
  • Provided everyone else involved agrees, you can redirect your inheritance to anyone you wish, even if they are not named in the deceased’s will.
  • Although you may be the one deciding what changes to make, through a DOV the changes are made in the name of the deceased as if they were making the changes themselves.
  • If a variation affects anyone under the age of 18, you will need court approval before making any changes.
    Extract: The telegraph

The next step…

Contact Ascot Estate Planning to get expert advice on setting up a Will or checking your IHT situation from Ascot Estate Planning Team.

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