Inheritance Tax and Deed of Variation Autumn Statement 2015

Inheritance Tax and Deed of Variation in Autumn Statement 2015.

A deed of variation is where a Will can be changed with two years of death provided all beneficiaries agree.  Whilst not commonly known, many people have used this to safe money when inheritance tax planning or indeed care fees wealth planning.

For example, if you spouse dies and leaves all wealth to you, you may have preferred some of it to be left to children, or indeed pass your deceased spouse’s share in a property to children.  If this was not part of the Will, you can vary it.  In certain circumstances this may reduce future inheritance tax or indeed assets that can be means tested for later life care for the surviving partner.

The government commissioned a consultation into the abuse of Deed of Variation looking at anti-avoidance rules for inheritance tax.  The Chancellor confirmed in his report that they will not be making changes to Deed of Variation.

Why do we think that they have not changed the Deed of Variation?

We suggest that as an alternative, the government will change capital gains tax rates in the future.  Capital gains tax is a charge to income tax at rates of 18% for gains when added to income within the basic rate tax band and 28% for gains when added to income are in the higher rate tax band.

We suggest that this move might be an early warning of the possibility of increasing capital gains taxes to normal income tax rates.  In short, if you vary a will, leave a share of property to your children, this is then a 2^nd property/investment property share and subject to Capital Gains Tax.  If tax rates were increased to 20%, 40% and 45% depending upon your income, this would offset any lost revenue to inheritance tax or care fees means testing.

Autumn Statement Key 'Pension and Investment' Points: