Should I Be Worried About Inheritance Tax Changes?
Tax avoidance has appeared once again on the Government's agenda, in the hope that clamping down on it will help to raise £3.1 billion through new tough measures.
George Osborne announced in his budget speech that he would be reviewing the avoidance of Inheritance Tax achieved by the use of 'Deeds of Variation'
What is a Deed of Variation?
A Deed of Variation allow a deceased person's will to be changed, as long as anyone who ends up receiving less than they would have done under the original will, agrees to the change. They can also be used where there is no will where the intestacy rules apply. The Chancellor wants to review these deeds if they are used to avoid Inheritance Tax, however, reducing an Inheritance Tax bill is not their only use.
Uses for a Deed of Variation
We asked one of our Contentious Probate Solicitors
, what her opinion was of the Government's current stance on Deeds of Variation. "George Osborne has stated that he will look at the 'avoidance of Inheritance Tax through the use of Deeds of Variation'. As long as he focuses his attention on deeds which are actually looking to avoid Inheritance Tax, there shouldn’t be an issue.
"Deeds are used for a number of reasons: to protect family members, to take into account a change in circumstances which wasn't reflected in the deceased's will. They are a useful and sympathetic tool in dealing with family issues, allowing the differing needs of family members to be considered.
"You could argue that the will should be the 'last word', but things change in life and wills do not always change with them.
"The deed allows an almost retrospective look – yes, the will did its job when it was made, but it no longer does and that needs to be taken into account. If there is no will, the intestacy rules apply. They do not always result in a fair outcome (one of the reasons why people should make wills in the first place) and the deed can restore the balance, ensure a fairer distribution and protect vulnerable relatives.
"In its rush to clamp down on avoidance, the Government needs to ensure that it doesn't throw the baby out with the bath water!"
The Governments Mission
Whilst it's clear that the Government can increase revenue by cracking down on those looking to avoid tax, it would be a shame if people, who are looking to ensure that the assets of the deceased are more appropriately and fairly distributed, feel unable to use a deed to achieve that end. "The Government is on something of a mission in terms of anti-avoidance schemes. For many people, morality and tax are an unhappy and unwelcome combination; they feel that if there is a scheme available, which is lawful, why should they not use it to save tax?
"The Government may wish to prevent any such schemes continuing, but it may be a case that 'nature will find a way' and huge energy and time will continue to be given by private tax professionals to considering how best to avoid paying tax."