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Scrutiny of IHT-driven deeds of variation begins

Thursday, 16 July, 2015

Consultation - Deeds of Variation

The government has launched a consultation on the use of deeds of variation (DoV) for tax purposes, to ensure that they are not being abused.

The consultation was promised by Chancellor George Osborne in the Budget immediately preceding the May general election.

Under the current rules, introduced in 1965 and 1972, the parties to a DoV can choose that the terms of the deed will be treated for inheritance tax (IHT) and capital gains tax (CGT) purposes as if they had been part of the deceased's will, rather than as a transfer between beneficiaries, which would be taxable as lifetime gifts. So they offer a retrospective means of adding estate planning provisions into a will.

HM Revenue & Customs admits it has little information about the uses of DoVs, particularly for purposes other than gaining a tax advantage. This is because executors only have to notify HMRC of a deed of variation if it results in an adjustment to the inheritance tax due. So the paper issued by HM Revenue & Customs is a call for evidence rather than any specific proposals.

A central part of the consultation is an online questionnaire designed to explore the circumstances in which DoVs are used for tax purposes, and how often. HMRC would particularly welcome hearing from individuals, or professionals who may have experience of using a DoV, or those who may be considering using one. Only after the replies have been analysed will HMRC decide whether any changes should be made to the current tax rules.

Comments on the paper are accepted until 7 October. HMRC is also inviting professional bodies to arrange face-to-face briefings.

Sources