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HMRC launches deeds of variation consultation

'It is hoped that the government will accept that this is not aggressive or unacceptable tax planning'

15 July 2015

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The government has launched its review of the use of deeds of variation (DoV) to examine whether they are being abused for tax purposes.

The consultation will reach out to stakeholders and seeks to illuminate what role the tax advantages play when a decision is made to vary a will through a DoV.

George Osborne announced in his last budget under the coalition government in March 2015, that the review was in response to concerns that it was being used to reduce inheritance tax exposure (IHT).

The leader of the opposition at the time of the budget, Ed Miliband, had previously used a DoV following the death of his father, and as a result of varying his father's will, had reduced the amount of IHT due - there was a suspicion that the review was designed to embarrass the Labour party.

Tim Stovold, a tax partner at law firm Kingston Smith, says that DoVs are not used solely to reduce tax exposure, but are a very useful tool in correcting any errors made during the drafting of a will.

'As no comments were made in the summer budget about this it was hoped that the decision had been made to leave well alone', said Stovold.

'It is clear now that deeds of variation, used perfectly legitimately to reduce inheritance tax, are squarely in HMRC's sights. However the circumstances where this planning is used will often be to rectify poor drafting and changes in family circumstances or intestacy, rather than to solely facilitate tax savings.

No means of recourse

The nature of wills means that any errors will only be discovered a long time after they are drafted, and in the majority of cases, after the testator has died.

Furthermore the increased use of online will drafting services and the fact that will-writing it is not a reserved legal activity, means that low standard wills are often drafted and without a DoV, there would be no means of correcting them, other than through a lengthy legal court process.

Stovold was keen to emphasis this fact.

'Without the ability to use a deed of variation, families will need to continue to take tax advice at a point where elderly relatives find this process stressful, as the conversation can only be had with their demise in mind.'

He added: 'No one is denying that deeds of variation are used in tax planning but, it is hoped that the government will accept that this is not aggressive or unacceptable tax planning.'


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Wills, Trusts & Probate