At the moment a Deed of Variation completed and delivered to the Taxman within 2 years of death can write or re-write the deceased’s Will, and for IHT and Capital Gains Tax purposes, provided.
a) Everyone adversely affected agrees.
b) There is no reciprocation – no one is compensated for what they give up.
c) None of the assets are affected by a Gift With Reservation.
d) If the deed of variation affects the rights of children or unborn children, Court approval will probably be needed.
It is possible to amend (“vary”) a Will or indeed an Intestacy after a death. There are many reasons why this may be desirable, for example, to balance the differences in the finances of the beneficiaries (perhaps from a rich brother to a poor sister), or to pass the inheritance on to the next generation rather than swelling the (taxable) estates of well heeled parents (maybe in modest health) to struggling grand or even great-grandchildren.
Normally, a deed of variation takes effect from the date of the document varying the inheritance. But provided those making the variation comply with the requirements, it can be treated for inheritance tax (IHT) and certain capital gains tax (CGT) purposes as if it had been made by the deceased on the date of death. IHT is recalculated taking account of the variation being made. And a nice big refund cheque of up to £120,000 – plus interest (we can help!)
Some advisers consider Deeds or Instruments of Variation will solve all problems after death, so Will planning is of limited value. We think such advice is dangerous, as the loophole could be removed at any time.
See also www.Inheritance-Tax-Secrets.co.uk for our book on Inheritance Tax Planning