For several decades there have been rumours of the abolition of deeds of variation and this sparked interest again last year in relation to a deed of variation in former Labour leader Ed Miliband’s father’s estate. Political fodder perhaps but the Chancellor announced in the March Budget that the Government would review the avoidance of IHT through deeds of variation. Many feared that the Government would introduce tighter controls on the use of deeds of variation but, having considered the responses to the consultation, the Chancellor announced that the Government would not be introducing any new restrictions on how deeds of variation can be used for tax purposes althoughbut it will keep the position under review.
This is welcome news as the use of deeds of variation goes beyond tax avoidance. For example, many are deployed to alter the distribution of an estate on intestacy to ensure that the estate is distributed according to the needs and wishes of the deceased’s family which are not always met by the strict terms of an intestate distribution. In addition, since the introduction of the reduced rate of IHT at 36% where 10% of an estate passes to charity, many clients opt to alter a will or intestate distribution to divert funds to charity and, as a consequence, to secure the 36% rate.
One must not forget that deeds of variation do not exploit a ‘loophole’, instead they are specifically provided for in IHT and CGT legislation and are for tax planning purposes.