Inheritance tax is a tax that is imposed on the estate of a deceased person. It is the responsibility of the executor of the estate to pay any inheritance tax due. In the United Kingdom, inheritance tax is charged at 40% on any estate worth more than £325,000. This can be a significant amount of money and it is important to understand how to reduce or avoid inheritance tax.
One way to do this is through a deed of variation.
What is a Deed of Variation?
A deed of variation is a legal document that allows the beneficiaries of an estate to change the terms of a will after the death of the testator. It can be used to redirect assets from one beneficiary to another, or to redirect assets from one type of asset to another. For example, it can be used to redirect money from one bank account to another, or from one type of investment to another. It can also be used to redirect assets from one beneficiary to another, such as from a child to a grandchild.How Can a Deed of Variation Help Avoid Inheritance Tax?
A deed of variation can be used to redirect assets from one beneficiary to another in order to reduce or avoid inheritance tax.For example, if an estate is worth more than £325,000 and the beneficiaries are liable for inheritance tax, they can use a deed of variation to redirect some of the assets from one beneficiary to another. This can reduce the value of the estate and therefore reduce or avoid inheritance tax. It is important to note that any changes made through a deed of variation must be made within two years of the death of the testator. After this time, any changes made will not be valid for inheritance tax purposes.
What Are the Benefits and Risks of Using a Deed of Variation?
The main benefit of using a deed of variation is that it can help reduce or avoid inheritance tax. This can save beneficiaries a significant amount of money and ensure that more money is available for them to use as they wish.However, there are some risks associated with using a deed of variation. One risk is that if the deed of variation is not properly drafted, it may not be valid for inheritance tax purposes. This means that any changes made may not be recognised by HMRC and could result in additional taxes being due. It is therefore important that any deed of variation is drafted correctly and in accordance with the law. Another risk is that if the deed of variation changes who will receive assets from an estate, this could have an impact on other beneficiaries. For example, if one beneficiary receives more assets than another, this could cause resentment or conflict between them.
It is therefore important that all beneficiaries are consulted before any changes are made.
