The Implications of Charge ===============================

Most of Inheritance Tax Planning techniques usually involve a widow or widower having continued enjoyment of their former spouse's share of property and thus it would appear on first inspection that in majority of cases charge would not apply as transferor themselves would not be around to continue to enjoy or benefit from property. 

However, a problem seems to arise where a couple own their property as joint tenants prior to commencing their tax planning strategy and subsequently changing their ownership title to tenants in common. Where widow or widower formerly owned property as joint tenants they had a share in ownership of whole property. This means that new Income Tax charge could conceivably apply to their continued occupation of property after their spouse's death.

A possible consequence of this for future might mean that instead of acquiring property as joint tenants which has been general rule, wise policy would be to own property as tenants in common instead. But how many people are aware of this distinction? Will legal advisors be prepared to explain tax implications of acquiring property with different legal titles?

Conclusion ===========

How far will new charge impact on current Inheritance Tax Planning schemes? As yet, it is too soon to tell, as rules have not been fully fleshed out and as yet, it is too soon to say with any certainty what will happen and which schemes will be affected.

But it seem fair to argue that current Labour Government is doing its utmost to tax its citizens at every possible turn. Inheritance Tax avoidance schemes - indeed any tax avoidance scheme -are not unlawful. Planning for future does not mean that people are engaging in tax evasion - which IS unlawful. But policies being employed leave an uncomfortable impression of an angry parent chastising their child simply for being astute and planning for future!

Needless to say, whole approach leaves a somewhat bitter taste in one's mouth.

JsByrne LLB (Hons) LPc. www.Draft-Your-Will.com

Perhaps above examples have already provided some clues as to why Deeds of Variation still have application in UK law. The example of Michael and Michelle demonstrates that such Deeds can serve an equitable role in correcting/amending what would otherwise appear to be unfair dispositions. 

The unfair dispositions might not be intentional on part of testator, particularly where they have not updated their Will.

Example -------

In 1998 when Monica made her will, her relationship with her daughter Amy, problematic for years, had eroded to point that Monica decided to leave Amy nothing in her will, dividing her estate of £1,000,000 equally between her two other children, Sam and Sadie. By time of Monica’s death last year she and Amy had reconciled, and Monica often voiced her intention to change her will to leave Amy one third of her estate. Due to infirmity Monica died before making this intended change, but aware of her wish, Sam and Sadie give Amy one third of Monica’s estate via a variation.But Deeds of Variation serve another practical role, and this is within realm of tax.

Not everyone engages in estate and tax planning let alone makes a Will in first place! Thus a person may have made a Will which upon their death was grossly out of date and an intolerable - and avoidable - amount of tax particularly IHT ensues. Or maybe there was no Will at all, in which case there would have been no IHT mitigation! This is where a Deed of Variation can save day.

Example -------

Malcolm left everything he owned to his wife Maude by survivorship. Transfers to spouses are automatically exempt anyway which means that Malcolm failed to utilise his Nil Rate Band Exemption. The result is that a hefty IHT bill will accrue on Maude's estate upon her death. Michael and Maude have adult children and a Deed of Variation could be agreed whereby Malcolm could leave his NRB legacy to his children thus using his allowance.

On other hand, if Malcolm's Will left more than current IHT allowance to his children in error (an outdated Will for example) tax would be due immediately. A Deed of Variation could remedy this by changing beneficiary to Maude thus resulting in delayed IHT and allows Maude time to engage in some tax planning and gift giving to reduce value of her estate.

Conclusion ===========

It has been argued by many that very notion of allowing family members to alter wishes of deceased Will maker flies in face of freedom of choice - freedom to choose who to leave one's own possessions to and who NOT to benefit as case may be.

But I submit that value of such legal documents far outweighs their 'intrusive' nature. They are able to remedy a range of situations, including persons who have wrongly been ignored reaping some benefit to those who have unintentionally been left out or not given enough. 

Taking into account fact that approximately 70% of people do not make a Will and with ever increasing value of people's estates beneficiaries can be left with sometimes overwhelming tax bills due to their family member leaving everything to intestacy, and here again Deed of Variation comes to rescue. And even those with foresight to make a Will can make mistakes and not plan adequately; Deed of Variation can come to rescue in minimizing tax that as inadvertently arisen.

The Deed of Variation is by no means a perfect tool and there are no doubt situations which it just cannot present itself as a remedy. But from tax perspective alone, with an ever increasing tax-hungry Government seeking to minimize tax avoidance schemes where ever possible, one is thankful that this tax saving tool and equitable remedy has been left untouched.

For meantime that is...