A will can be varied or on an intestacy the provisions altered by making a deed of variation. There can also be significant Inheritance Tax (IHT) and Capital Gains Tax (CGT) advantages.
Inheritance Tax
For IHT a disposal made by a deed of variation is treated by the Revenue as having been made by the deceased, rather than as transfers of value by the beneficiaries redirecting their interests. The variation must take place within two years after a person’s death and be in writing.
A variation can deal with any property comprised in a deceased person’s estate. This includes the deceased’s half share in a joint tenancy, which can be severed after death. Property situated outside the UK if owned by a UK domiciled person can also be included. The Revenue do not need to be advised that a variation has been made at the time unless there is additional IHT to pay.
Capital Gains Tax
For CGT purposes, a variation will be effective if the Revenue are given written notice by the parties within six months after the date it is entered into. A simple disclaimer by a beneficiary is also effective for CGT purposes.
The variation needs to contain a statement that it is being made by the affected beneficiary or beneficiaries.
Words of caution
A variation can only be made for a minor if his beneficial interest is increased. The interest cannot be decreased without the approval of the court. Also, do bear in mind that all of the beneficiaries being affected by the variation must be a party to it.
Disclaimers
Deeds of Variations allow an inheritance to be redirected, rather than merely disclaimed without any control over the ultimate destination of the assets. A simple disclaimer (for example of a legacy or an inheritance) does not have to be in writing. However, if it is to be effective for IHT and CGT purposes it does need to be in writing within two years of the date of death. A disclaimer can only be made before the person disclaiming has received any property from the estate.
