There aren’t many people in the UK who like the idea of inheritance tax – it seems that it’s just the politicians who are keen on it. But what can be done about it? Surely it is something that must simply be paid and be done with?
Not necessarily. There is an inheritance tax loophole that more and more people are taking advantage of.
It all relates to the ‘deed of variation’. The dead of variation allows the beneficiaries of a will to redirect the assets left to them to other people. But how does this help?
Firstly, it means that the inheritance can be given straight to those who might have a more immediate need for it such as grandchildren rather than children. Secondly – and perhaps more importantly in many respects – it can reduce the overall inheritance tax liability for the family. It effectively diverts wealth away from an estate that is already close to the inheritance tax liability threshold, and it means that the estate won’t be taxed twice.
There are certain criteria that need to be met for this to happen, however. The changes must be made within two years of the death. All the beneficiaries within the will must agree to any changes made, otherwise it cannot happen. They must all sign the variation. The variation deed must be very clear about who is to inherit, and everything must be set out in writing. It should also contain a stamp duty exemption certificate if any stocks or shares have been changed. If the changes are being made with regards to inheritance tax or capital gains tax, there must be a signed note to that effect along with the deed of variation.