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Budget 2015; Inheritance Tax

George Osborne has announced that the Government will conduct a review on the avoidance of inheritance tax through the use of deeds of variation and will report by the Autumn.A beneficiary of a George Osborne has announced that the Government will conduct a review on the avoidance of inheritance tax through the use of deeds of variation and will report by the Autumn.

A beneficiary of a deceased person's estate may redirect their interest in the estate by using a deed of variation.  If a non-exempt beneficiary redirects their interest in the estate to an exempt beneficiary (the spouse/civil partner of the deceased or a charity) that interest will no longer be subject to inheritance tax if the variation complies with the provisions set out in section 142 Inheritance Tax Act 1984 (for example the variation must be made within 2 years of the date of death, the variation must be in writing, the beneficiary redirecting their interest must be a party of the deed, the deed must state that the parties to the deed intend section 142 Inheritance Tax Act 1984 to apply to the variation and the variation cannot be made for consideration).

HM Revenue & Customs ('HMRC') are already cracking down on people avoiding inheritance tax through the use of deeds of variation.  For example, HMRC state in their inheritance tax manual number 35093 that if HMRC believe that the exempt beneficiary will return the interest to the original beneficiary, they will challenge the variation.

References:

Chancellor George Osborne's Budget 2015 speech, https://www.gov.uk/government/speeches/chancellor-george-osbornes-budget-2015-speech, (accessed 18 March 2015).

'After death variations: IHT and CGT', Practical Law, (accessed 18 March 2015).

C. Butcher and A. King-Jones, Probate Practice Manual Thomson Reuters (Professional) UK Limited, 2014, paragraphs F1.1, F2.1-F2.24, F5.1-F5.4.

C. V. Margrave-Jones, 'After-death variation: Narrative', Butterworths Wills, Probate & Administration Service, Issue 71, December 2010, paragraphs F[1.1]-F[1.11].

Inheritance Tax Act 1984 s142

HM Revenue & Customs, 'IHTM35093 - Property redirected to the spouse or civil partner: gifts back to original beneficiaries', http://www.hmrc.gov.uk/manuals/ihtmanual/IHTM35093.htm, (accessed 18 March 2015).

 

 

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