Latimer Hinks, has advised that wills should be made water-tight in anticipation of a proposed ruling that has the potential to cause problems.
The warning comes after Ed Balls has said that he would carry out a wide-ranging review of tax-planning schemes if he becomes Chancellor, including the use of deeds of variation on wills used by the family of Labour leader Ed Miliband. Mr Balls said Mr Miliband had paid all the tax he owed on his parents house. A deed of variation in his fathers estate after his death in 1994 moved the ownership of some of the property from his mother to Mr Miliband and his brother David. This could reduce the amount of inheritance tax due on the property on his mothers death.
Latimer Hinks is advising that anyone with a will should consider reviewing it in light of the potential changes.
Elizabeth Armstrong, a Partner in the private client department at Latimer Hinks, said: "I would urge people to consider updating their wills in light of this potential change. The tightening of the taxmans "anti-avoidance powers means that what has in the past been relatively straightforward tax planning may no longer succeed.
"Rather than inheriting assets when a beneficiary may already have an estate which is likely to attract Inheritance Tax, it is currently possible to redirect that inheritance to another person. This is commonly done where perhaps assets such as shares or property are likely to increase in value. It relies on the so-called deed of variation, where the beneficiaries of a will can within two years of a persons death elect to have the money passed on immediately to other parties. This might be used when, for instance, an already well-off, elderly widow inherits money. The writing of such a deed allows the money to pass straight to somebody else. The money is never part of her estate, and so doesnt add to her own Inheritance Tax liability.
Elizabeth added: "Deeds of variation can be used in other ways. For example, when one spouse dies, while most of their estate may go to their husband or wife, some assets are bequeathed directly to their children. This might include property or shares which have increased in value since the last review of the will, so they exceed the threshold and trigger an Inheritance Tax liability earlier than had originally been intended.
"If so, the recipients can prepare a deed of variation to have their inheritance, above the value of the threshold, re-directed to their surviving parent or to a certain type of trust so that no tax is payable until the surviving parent dies.
"The surviving parent or the trustees - if a trust is used - may then be able to undertake some further tax or estate planning to reduce the impact of Inheritance Tax when the survivor eventually dies.
For further information contact Latimer Hinks on 01325 341500