The View from No 50





November 2007

K P Bonney & Co

Chartered Accountants and

Chartered Tax Advisers

50 Cleasby Road  Menston

Ilkley  LS29 6JA

Tel:  01943 870933

Fax:  01943 870925







Did you hear about the family that re-wrote their deceased father’s will after he had died?  That can’t be legal can it?  Even if it were, why would they want to do that?


The family cannot re-write the deceased’s will but, provided all the relevant people agree, they can distribute the deceased’s estate in some way other than that provided in the will.


The people who must consent to the variation are those who give up some or all of their entitlement under the will.


The terms of the variation must be set out in writing and must be agreed within two years of the date of death.  The arrangement usually involves the drafting of a deed.  At this point it all starts to sound a little too complicated for our liking and we ring our family solicitor and get them to do it for us.


Why would you want to do it anyway?


You may have good family reasons for making a change.


You may want to make a change in order to save tax.


Here are some examples of situations in which making a variation can help to save tax.


Generation skipping


Charles, aged 65, and with inheritance tax concerns of his own, receives a legacy from the estate of his widowed mother Charlotte.  Charles doesn’t need the legacy so he gives an equal sum of money to his daughter Charlene.  The problem here is that if Charles doesn’t survive for seven years after the date of his gift, the value of the gift counts as part of his estate.  Charlene ends up having to pay inheritance tax at up to 40%.


A more tax efficient outcome is achievable.  By writing a variation Charles can arrange for his entitlement under his mother’s will to pass to Charlene.  If Charles dies within seven years the gift does not count as part of his estate because, for inheritance tax purposes, he is not treated as the person making the gift.  The result is that Charlene gets the gift free of tax.


Growth in value


Another, less common situation in which a variation can produce a tax saving, arises when assets left by the deceased increase in value after death.


Henry and Henrietta, both in their eighties, have written tax efficient wills.  Henry dies first and amongst the assets he leaves to his wife is a holding of shares in Coldbusters plc worth £5,000.  One year after Henry’s death Coldbusters plc discovers a cure for the common cold.  The shares are now worth £5 million.


All of a sudden the potential inheritance tax payable when Henrietta dies is increased by £2 million.


By entering into a variation, Henrietta can arrange for the Coldbuster shares to pass to her children.  For inheritance tax purposes the transfer is treated as though it were made by Henry, not Henrietta and it is treated as a transfer of value of £5,000 not £5 million.


Result – any inheritance tax issues are postponed for another generation.  Tax deferred is tax saved.



Interestingly, a variation can be made even if the deceased died without making a will.  In these circumstances the variation overrides the statutory estate distribution rules which would otherwise apply.


Another important point to bear in mind is that a variation is only effective for tax purposes if it is made for no consideration.


My great uncle dies leaving me £200,000.  Unfortunately, my great uncle’s circumstances are such that his personal representatives have to pay inheritance tax of £80,000 to the Revenue, so in actual fact I get only £120,000.


In order to cut out the taxman, I form the Me Me Me Charitable Trust and enter into a variation arrangement under which the £200,000 goes to the charity and after which the charity gives me £190,000.  Gifts to charity are exempt from inheritance tax.  The net result is the charity gets £10,000 and I get £190,000 and the Revenue gets nothing.  Does that work?  No.  The plan fails because the charity has given consideration.  It has agreed to pay me £190,000 in order to get £200,000.  My greed means the taxman still gets his £80,000.



In summary then, it is never too late for tax planning.  Variations can be used to save substantial amounts of tax.  They are however, no substitute for lifetime planning.


Our Advice:  Do your tax planning whilst you have chance to do so.  It is far better to plan than to rely on members of your family to patch things up after you have gone.  For the families of those who never get round to planning, variations can be an effective, last ditch way of saving tax.





If you run a business you could obtain a 100% first year tax allowance for the cost of a car used in the business.


You know what they say about things which sound too good to be true.  Well there is a condition.  The condition is that the car must not emit more than 120gm/km of CO2.


What cars are eligible for this allowance?


Have a look at





When HMRC inspect your business records they will expect you to be able to substantiate your claims for business mileage.  No doubt you will know what journeys made up that 700 miles you claimed from the company last month.  But will you still remember this time next year?


HMRC can (and does) use journey planner websites to work out the actual distance of journeys.  If Google says that return trip to Birmingham is 200 miles and you have claimed 250 you might have some explaining to do.


Our Advice:  Whether you are an employee claiming from your employer or a self employed individual claiming tax relief it is important to keep accurate records of business mileage.  Bearing in mind the resources available to HMRC it is also a good idea to note the reasons for any apparent excess mileage (e.g. diversions, longer but faster routes).





Aaaarghh not that time of year already?!


As this is the last newsletter before Christmas here is a reminder about the tax free merriment employers can provide to their employees.


The cost of staff parties is exempt from tax so long as the cost does not exceed £150 per head per annum.


This concession applies to one man companies just as much as it does to large companies so get out there and party (as much as £150 per annum will allow).





Malcolm, a director of a Premier League football club, is interviewing Tommy for the post of manager.  Tommy has a severe winking problem.


Malcolm looks over Tommy’s CV.  “This is fantastic.  Your references are superb and your experience is just what we are looking for.  Normally I would hire you right here and now but I am afraid I can’t.  These days there is more to being a manager than working with the team.  There is a lot of media work.  I am afraid your winking problem would harm the club’s image.”


“Wait!” says Tommy “If I take two asprin, I stop winking.”


He reaches into his jacket pocket and pulls out all sorts of condoms: red ones, blue ones, ribbed ones, flavoured ones and finally, from the bottom of his pocket, a packet of asprin.  He tears it open, swallows the pills and stops winking immediately.


“Well,” says Malcolm, “that’s all well and good but this is a respectable club.  We can’t take on a womaniser!”


“Womaniser?  What do you mean?  I’m a happily married man!”


“Well how do you explain all these condoms?”


“Oh, that," he sighed. "Have you ever walked into a pharmacy, winking, and asked for aspirin?"


Copyright:  K P Bonney & Co LLP 2007.  All rights reserved.  No part of this publication may be produced, stored in a retrieval system, or transmitted in any form or by any means, electronic mechanical, photocopying, recording or otherwise without prior written permission of the publishers.  Disclaimer:  The publishers have taken all due care in the preparation of this publication.  No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the authors or the publisher.

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