Kent solicitor warns ‘time is running out’ for beneficiaries to take advantage of inheritance tax tools.
Posted on 28th April 2016 at 15:07
An inheritance tax tool could soon disappear as part of a Government clampdown.
An invaluable tax planning tool that has enabled families to avoid large inheritance tax charges for generations could soon disappear as part of a Government clampdown, according to Kent legal firm Furley Page.
The firm says that, during George Osborne’s budget speech, he announced plans to take forward a “…review on the avoidance of inheritance tax through the use of Deeds of Variation” by this autumn. Furley Page solicitor Joshua Williams is warning that could mean time is running out for beneficiaries to take advantage of them.
“Tax avoidance is not the same as tax evasion,” explains Mr Williams.
“The critical difference is that tax evasion is the illegal practice of not paying taxes by not reporting income, reporting expenses not legally allowed, or by not paying taxes that you owe. Tax avoidance, however, is a completely legitimate way of managing your tax affairs to ensure you pay the lowest tax possible. A Deed of Variation is one example.
“For many years it has been a useful tool for allowing a beneficiary to redirect their inheritance to another person, but it must be completed within two years of the date of the deceased’s death.
“So, if you have inherited within the last two years and want to reduce the amount of tax you pay, it’s vital you seek advice as soon as possible before this opportunity disappears.”
The current threshold for inheritance tax sits at £325,000. All inheritance below this is tax free, but once exceeded everything is taxed at 40 per cent.
Mr Williams, and estate and planning administration expert said: “Given the widespread use of Deeds of Variation and their ability to save inheritance tax easily between generations, it’s not surprising the Chancellor is keen to review this area and try to claw back more tax.
“It would, however, be a shame to see the Government move against something that has been around for generations and helped countless families to pass on estates as they see fit – without seeing what their loved ones have worked so hard for being taken away in taxes.”
Deeds of Variation have been commonplace for many years and are sensible tax planning tools, says Mr Williams. They can be executed by a beneficiary of an estate (regardless of whether there’s a Will in place) to redirect their entitlement and must be completed within two years of the death of the deceased for it to be effective for tax purposes.
Mr Williams added: “This can be a fantastic tax planning tool where, say, an individual wants to enjoy their inheritance but does not want that inheritance to be added to their own taxable estate when they die, and tax then has to be paid.
“It’s also a helpful option where a beneficiary simply doesn’t want some or all of their inheritance but wants to dictate who should inherit in their place – for example, their children or a charity. It used to be referred to as a Deed of Family Arrangement, which spells out its very purpose.
“If we’re going to lose the option of a Deed of Variation in the near future then the Chancellor’s announcement also reminds us of how important it is to have the structure of your Will exactly in line with your intentions for the distribution of your estate.”
Tagged as: Inheritance Tax
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