Deeds of Variation: Redirecting an Inheritance
A will can be years out of date by the time it takes effect. Circumstances change, relationships shift, and tax rules move on. A deed of variation is the legal tool that lets the people who inherit put things right, by redirecting part or all of an inheritance within two years of death. For inheritance tax purposes, the variation is treated as if the deceased had made the change themselves.
How a Deed of Variation Works
Under section 142 of the Inheritance Tax Act 1984, beneficiaries can vary the terms of a will, or the way an intestate estate is distributed. Provided certain conditions are met, HMRC “reads back” the variation: the estate is taxed as if the original will had always said what the deed now says.
A deed of variation must satisfy all of the following:
- It must be in writing
- It must be made within two years of the date of death
- It must be signed by all the beneficiaries affected by the change
- It must contain a statement that section 142 is intended to apply
- It must be made without consideration (nobody is paid to give up their inheritance)
If these conditions are met, the person giving up part of their inheritance is not treated as making a gift themselves. That matters, because a gift made by the beneficiary would be a potentially exempt transfer, subject to the seven-year rule. Under a deed of variation, no such gift arises.
Why Families Use a Deed of Variation
Correcting an Outdated Will
A will may have been written before a marriage, divorce, the birth of grandchildren or a major falling-out. A variation lets the family bring the distribution into line with what the deceased would have wanted today.
Redirecting to the Next Generation
A child who inherits from a parent but has a comfortable estate of their own may redirect their inheritance to their own children. This skips a generation, so the assets are not added to the child’s estate where they would face inheritance tax again on the child’s death.
Giving to Charity
If a variation directs at least 10% of the net estate to charity, the whole estate qualifies for the reduced inheritance tax rate of 36% instead of 40%. A relatively modest charitable gift can leave the family better off overall.
Using the Residence Nil-Rate Band
A variation can redirect the family home to a direct descendant, which can qualify the estate for the residence nil-rate band (RNRB) that would otherwise be lost. This is often the difference between no inheritance tax and a six-figure bill.
Providing for Someone the Will Missed
An unmarried partner, a carer, or a dependent who was left out can be provided for through a variation, without the cost and delay of a claim under the Inheritance (Provision for Family and Dependants) Act 1975.
The Inheritance Tax Effect
Because the variation reads back, the inheritance tax position is recalculated as if the deceased had always made the changed disposition. This can:
- Redirect assets to a surviving spouse to use the spousal exemption
- Use the deceased’s unused nil-rate band and residence nil-rate band efficiently
- Qualify the estate for the 36% charitable rate
- Preserve business and agricultural relief by redirecting qualifying assets to the right beneficiary
The two-year window runs from the date of death, not from when probate is granted or the assets are distributed. In practice, families often start thinking about a variation only after the estate has been partly administered, so time can be shorter than it looks. There are no extensions.
The Capital Gains Tax Effect
Under section 62 of the Taxation of Chargeable Gains Act 1992, the person who receives redirected assets is treated as having acquired them at their probate value (the market value at the date of death). No capital gains tax charge arises on the variation itself. When the new beneficiary eventually sells, their gain is measured from that probate value, not from anything paid or given up under the deed.
Deeds of Variation vs Disclaimer
A disclaimer is a simpler alternative. The beneficiary simply refuses their inheritance, and the assets pass as if the beneficiary had died before the deceased. A disclaimer:
- Does not need to name who receives the assets
- Must be made before the beneficiary has accepted any benefit from the inheritance
- Does not need to reference section 142
The trade-off is control. A deed of variation lets you choose exactly who receives the redirected assets and can be made after you have already received them; a disclaimer passes control back to the will or intestacy rules.
Practical Points
- All affected beneficiaries must agree. You cannot force someone to give up their inheritance.
- Advice early, not late. The two-year clock is absolute, and drafting takes time.
- HMRC should be told. Where the estate has already been taxed, the variation is notified through the estate’s inheritance tax account (form IHT400) or a supplementary return.
- Keep it gratuitous. Any payment in return for the variation disqualifies it from section 142 treatment.
Deeds of variation are a legitimate, widely used piece of post-death planning. They also intersect with wider inheritance planning, including wills and estate planning, trusts and the inheritance tax reliefs available to an estate.