Financial advisers in the UK are seeing a rise in clients utilising a “deed of variation” to transfer their inheritance into a trust after their parents have died to save their kids from IHT in future.
A deed of variation allows the beneficiary of an inheritance to change how their share of the inheritance is distributed after their death, and this is treated as though the deceased person made that decision.
So, for example, they can move the money into a trust, and it is treated as though the deceased person gifted it into a trust themselves. This must be done within two years of the death.
Advisers say deeds of variation have previously seen low usage, but with the upcoming inheritance tax (IHT) changes in the UK that will bring pensions and business assets over £1m into estates for IHT purposes, more clients are using it to save their children tax in future.
Scott Gallacher, director of advice firm Rowley Turton, said: “We are now discussing deeds of variation with almost every client we see, as the government’s new IHT raid on pensions is dramatically increasing the number of families facing inheritance tax on their estates.
“In many cases, this approach is creating six-figure IHT savings, as well as providing valuable protection against divorce settlements and long-term care fees for future generations.”
David Stirling, an independent financial adviser at Belfast-based Mint Wealth, said the take-up is likely to continue to increase over the next few years as families look for ways to reduce their IHT liabilities.
“As 2027 gets closer, families and advisers need to get ready for a more complicated inheritance tax system. Deeds of Variation and Trust planning will likely become more widely used,” he said.
