If you are the beneficiary of an estate, you may find yourself falling prey to a hefty inheritance tax bill. There are various ways to slash these costs, one of which is by drawing up a ‘Deed of Variation.’ Prestige Tax and Trust Services explains how to avoid inheritance tax with a deed of variation.
Paying inheritance tax
As a beneficiary of an estate, you may not be entitled to receive all of your inheritance. Should the value of the deceased’s estate eclipse a certain amount (£325,000) at present, then said estate will be required to pay a 40% inheritance tax on anything above this threshold, leaving less for you to inherit. It is useful, therefore, to find ways to avoid inheritance tax to maximise what you take away.
There are various ways, from leveraging trusts to giving ‘gifts,’ for the person whom the estate belongs to, to slash the inheritance tax bill. We recently revealed, for example, that they can strategically use Individual Savings Accounts – passing these vehicles’ tax-free allowances to their spouses to cut the value of the estate, and protect your inheritance. But is there anything you can do as a beneficiary?
Varying your inheritance
Why yes there is – you can draw up a Deed of Variation. As a BT article explains, a Deed of Variation is a document which you can use to redirect the deceased’s assets which you inherited to someone else – perhaps your spouse or children. As long as you secure the agreement of all the deceased’s beneficiaries beforehand, you can use this tool to give all or part of your inheritance to someone else.
For the sake of clarification, a Deed of Variation is not the same thing as a ‘variation.’ The latter term refers to a legal tool which can be employed to change a will after someone has died. You may need to use a variation, for instance, to clear up any uncertainty in a will. But this is often a lengthy, complex process – as it can result in court proceedings, and it is not an effective way to reduce inheritance tax.
Protecting your inheritance
So why is a Deed of Variation more effective at shielding your inheritance, than a variation? With this document, you can alter the distribution of assets in the deceased’s estate, allowing said estate to take advantage of existing inheritance tax exemptions for certain assets and beneficiaries as much as possible. This will reduce the taxable value of the estate, leaving more for beneficiaries to inherit.
As an example, let’s say you use a Deed of Variation to pass some or all of your inheritance to your spouse or civil partner. These people would be liable to pay inheritance tax if they were handed the assets by the deceased, but since they were given them by you, as your spouse or civil partner they are exempt under UK law. Keep in mind that you must make a Deed of Variation within two years of the deceased’s passing, it must be in writing and it must be signed by all the estate’s beneficiaries.
Prestige Tax and Trust Services
If you compile a well-written Deed of Variation, therefore, you can use it to really maximise your inheritance. It is wise to come to experts to ensure you draw up an effective Deed of Variation, as UK inheritance law is complex, so this task is best completed by someone who knows their stuff. Prestige Tax and Trust Services can lend a hand here, helping you avoid inheritance tax on a loved one’s estate.