DEEDS OF VARIATION/DEEDS OF FAMILY ARRANGEMENTS
Synopsis: The High Court has rectified a deed of variation that did not include an inheritance tax statement because it did not achieve the parties’ intentions.
In the latest in a wave of rectification cases, the High Court has held that a post-death variation that did not include a statement that the parties were claiming retrospective tax treatment for inheritance tax (IHT) purposes under section 142(1) of the Inheritance Tax Act 1984 could be rectified so as to insert the missing statement, because, without it, it did not achieve what the parties had intended.
Evidence presented to the court in the case of Vaughan-Jones and another v Vaughan-Jones and others [2015] EWHC 1086 (Ch), suggested that the solicitor, being under pressure to get the deed completed before the expiry of the two-year window, had used an out-of-date precedent that did not reflect the 2002 changes to the rules on deeds of variation which made it a condition that a statement claiming retrospective tax treatment must be included in the deed in order to achieve the desired IHT result.
The Court refused, however, to rectify the deed to include the corresponding statement required by section 62(7) of the Taxation of Chargeable Gains Act 1992 for retrospective capital gains tax treatment, as there was insufficient evidence to suggest that the parties had even considered the capital gains tax position when the instructions were given.
COMMENT
Prior to Finance Act 2002, an election, to be effective for IHT purposes, did not need to be contained within the deed of variation itself, but it had to be sent to the Capital Taxes Office within six months of the deed.
The case highlights the importance of keeping abreast of changes to the law and ensuring that precedents are up-to-date so that client objectives can be properly achieved and reiterates that a misunderstanding as to the tax consequences of executing a particular document will not in itself justify an order for its rectification – the specific intention of the parties is key.
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