A Deed of Variation differs from a Deed of Disclaimer by which a beneficiary gives up their entitlement to the deceased’s estate and the disclaimed part of the estate is then governed by the Will or intestacy provisions.
The variation is treated as a gift by the original beneficiary to the recipient unless the original beneficiary has made an election for Inheritance Tax and/or Capital Gains Tax purposes. The effect of a deed of variation with an election for Inheritance Tax and/or Capital Gains Tax purposes is that the recipient is deemed to have inherited directly from the deceased, rather than as a gift from the original beneficiary.
A Deed of Variation must:
- Be made within two years of the deceased’s date of death
- Be made in writing
- Be signed by all individuals whose entitlement is adversely affected
- Clearly indicate the inheritances that are being varied and how they are being altered
- Contain a Stamp Duty exemption certificate if it alters the destination of stocks, shares or marketable securities
- Contain a statement that the signatories intend the variation to have effect for Inheritance Tax and/or Capital Gains Tax
- Not be made for consideration or money’s worth
Why should I make a Deed of Variation?
- Inheritance Tax (IHT) savings
Each individual has an IHT allowance of £325,000. Anything about this amount at the date of death is taxable at 40%. A Deed of Variation can significantly reduce the amount of IHT payable by the estate.
One way in which a variation can do this is by ensuring that 10% of the deceased’s net estate passes to charity. This means that the estate would then benefit from the reduced IHT rate of 36%.
A Deed of Variation can also be used to take advantage of other reliefs such as business property relief and agricultural property relief.
A copy of the variation must be sent to HMRC if it alters the amount of IHT payable.
- Change of circumstances since Will was written
An individual may not need or wish to receive their inheritance or the Will may not include children or grandchildren that have been born after the Will was made. A Deed of Variation can be used to provide for those that have been left out of the Will or to equal out the distribution of the estate e.g. one person has received a smaller share than others (note if the variation alters the distribution of another individuals share of the estate they must also be party to the deed).
If an individual has died without making a Will their estate will be governed by the strict rules of intestacy. A Deed of Variation can be used to redirect the deceased’s estate to those that would not have been entitled to it under the intestacy rules.
We would advise seeking legal advice if you are looking to make a Deed of Variation to ensure that the document meets the necessary requirements.
If you would like to speak to a member of our specialist Wills, Trusts and Probate team about making a Deed of Variation, please do not hesitate to contact us on email@example.com or by calling 01379 652141.
*The information provided in this article is designed to provide useful information on the subject, not to provide specific legal advice.