Budget 2015 – tax avoidance: Door closed on popular legal loophole to avoid inheritance bill

The Chancellor used his budget to announce a review of deeds of variation

Taking a swipe at the personal tax affairs of Ed Miliband, George Osborne yesterday pledged to crack down on people who use a legal loophole to avoid inheritance tax.

As part of a £3.1bn drive to claw back money lost through tax avoidance and evasion the Chancellor used his budget to announce a review of deeds of variation – that allow changes to be made to wills after someone’s death.

Mr Miliband has been accused of using such a deed to alter Ralph Miliband’s will in a way that moved ownership of some of the family home into his and his brother’s names after his father’s death. The Labour leader has always denied the move was designed to save him tax.

But Mr Osborne said he was concerned that the measure was being abused and said the Treasury would conduct a review on the “avoidance of inheritance tax through the use of deeds of variation”.

“We will seek a wide range of views, and we look forward to drawing on the particular expertise of the Leader of the Opposition,” he joked. But the move has alarmed accountants who have warned it could have wide-ranging and unforeseen consequences.

David Kilshaw, head of private client tax at accountants Ernst & Young, said: “Deeds of variation are not just tax planning vehicles. They can ensure estates pass as families wish where there is no will or where circumstances have changed.

“When somebody dies without a will, for example, a deed of variation may ensure a widow/widower can stay in their home.

He added: “Over two thirds of people don’t have a will. A deed of variation can be a lifeline for their heirs and it is vital that any anti-avoidance measures don’t remove this.”

Dermot Callinan, tax partner at KPMG, pointed out that deeds of variation were a long-standing measure in tax planning.

“It is a shame that something that has been around for generations to enable the straightforward handling of estates between families has been questioned as a mechanism for tax avoidance,” he added.

Mr Osborne also announced that he would press ahead with a new tax on multinationals that divert profits offshore.

The so-called “Google Tax” is designed to discourage large companies moving profits out of the UK to avoid tax. It follows rows over how much corporation tax some companies pay.

“Let the message go out: this country’s tolerance for those who will not pay their fair share of taxes has come to an end,” Mr Osborne said.

New legislation will be announced today outlining new criminal offences and penalties for aiding tax evasion, the Chancellor added.

The government expects to raise £560m by 2020 from its drive against offshore tax evasion, spearheaded by the introduction of the “Common Reporting Standard”, a global anti-evasion initiative that will provide details of offshore accounts held in over 90 countries.

The biggest new avoidance measure in the Budget, expected to raise £715m by 2020, was aimed at “contrived loss arrangements” used to cut corporate tax bills.

The measure will prevent companies from bringing forward reliefs such as trading losses, and will come into force immediately.

The move will curb companies’ ability to make use of previous years’ losses, which are already limited by international standards.