How to reduce IHT with a Deed of Variation?

Predicting the value of your Estate isn’t easy, not least because you don’t when you will die.

After someone dies it is possible for the beneficiaries to change the Will using a Deed of Variation, there are free examples on the internet for example Deed of Variation UK Template – Make Your Free Deed of Variation (rocketlawyer.com)

Note that Beneficiaries under 18 can’t enter into Deeds of Variation.

HMRC also provide a Checklist IOV2 Instrument of Variation checklist (publishing.service.gov.uk)

You can’t re-write a Will but a Deed of Variation will change the content of it and the Inheritance Tax (IHT) payable.

For example by making a donation to charity.

Where a gift is made to a Charity its taken off the value of the estate and as such will reduce IHT, it could even reduce the rate of IHT on the whole estate currently by 4% (40% to 36%), click here for HMRC reduced rate calculator.

In summary, your donation will either:

  • be taken off the value of your estate before Inheritance Tax is calculated
  • reduce your Inheritance Tax rate, if 10% or more of your estate is left to charity

You can donate:

  • a fixed amount
  • an item
  • what’s left after other gifts have been given out

The Deed of Variation can be prepared before or after the Grant of Probate but generally in must be made within 2 years of the date of death.

FA 2010 definition of charity

Under Sch 6 Para 1 FA 2010 a charity is a body of persons or trust that:

  • is established for ‘charitable purposes’ only
  • meets the jurisdiction condition (i.e. is subject to the jurisdiction of a relevant UK court or the courts of a relevant territory)
  • meets the registration condition (i.e. has complied with any requirement under the applicable law to be registered), and
  • meets the management condition (i.e. the managers are fit and proper persons).

This definition of charity allows charities of relevant territories to qualify as charities for the purposes of UK legislation (provided the conditions above are met). Relevant territories are those in EU Member States, Iceland and Norway

Other reasons why you might need a Deed of Variation

  1. Equalising distributions between the Beneficiaries
  2. Including beneficiaries such as a grandchild born after the Will was created
  3. Including someone who the Rules of Intestacy do not apply to, such as a partner or step-child
  4. Resolving uncertainty in the Will

steve@simple-probate.co.uk

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