In his pre-election Budget, the Chancellor announced that there would be a consultation on the use of deeds of variation. This review would form a part of a wider review on tax avoidance strategies. An opportunistic quip following the sensationalist reporting that Ed Milliband’s mother entered into a deed of variation or something to be concerned about?
During the pre-election Budget earlier in the year, the Chancellor announced that the government intended to carry out a review into the use of deeds of variation, but gave no clue as to what this review would cover or what the objectives were. The consultation entitled “Review looking at the use of Deeds of Variation (DoV) for tax purposes” was launched on 15 July 2015.
Deeds of variation can presently be made within two years of a death, to re-organise the terms of the deceased person’s Will (or intestacy if there is no Will). The original beneficiary can choose to have the change treated as if it were made in the Will and taking effect from the date of death, which attracts favourable inheritance and capital gains tax treatment. It is often used to enable an adult beneficiary to redirect their inheritance to their children – thereby avoiding the second chunk of inheritance tax which HM Revenue & Customs would otherwise get when the adult beneficiary dies.
Many people have a Will which contains a discretionary trust. This may be of the whole estate or it could be limited to the nil rate band (£325,000 for 2015/16 and frozen at that level until at least 2020/21). At present, the trustees of the discretionary trust can make payments from the trust within 2 years of the death, taking advantage of hindsight at the date of death as to the tax situation and family needs. Again, this arrangement attracts favourable tax treatment, but, for now, is not the subject of this review.
The government has asked for views about the use and effect of deeds of variation in order to get a better understanding of them and to inform their review. Of all the tax related consultations the government has issued in the past, this has to be one of the most vague that we have seen. The government has produced a very bland questionnaire consisting of 7 multiple choice questions and two allowing for open-ended responses. We cannot imagine that many stakeholders will be motivated to respond. This call for evidence ends on 7 October 2015, after which the government will no doubt inform the public of the next steps in its review.
We shall have to keep a watching brief on this review, but for the time being, deeds of variation remain a permitted means of tax and succession planning.