Inheritance Tax
What Is a Deed of Variation?
A deed of variation is a legal document that allows beneficiaries to change how an estate is distributed after death — redirecting assets to different people or to a trust. It must be signed within 2 years of the date of death to be effective for inheritance tax purposes. At Legacy Lines, we help Kent families understand when a deed of variation could be useful as part of their wider estate planning.
In this guide
What is a deed of variation?
A deed of variation (sometimes called a deed of family arrangement) is a formal legal document that changes the distribution of a deceased person's estate after their death. It allows one or more beneficiaries to redirect all or part of their inheritance to another person, to a trust, or to charity.
Crucially, if the deed includes the correct statutory elections, it is treated for inheritance tax (IHT) and capital gains tax (CGT) purposes as though the will or intestacy had always said what the deed now says — not as a gift from the beneficiary who redirected the assets.
This backdating effect is what makes a deed of variation a powerful tool for tax planning. Without this election, redirecting inherited assets would be treated as a potentially exempt transfer from the beneficiary, potentially subject to IHT if they die within 7 years.
Why would you use a deed of variation?
Inheritance tax planning
If a beneficiary already has a large estate, inheriting more may simply add to an IHT problem when they die. Redirecting to children or grandchildren — or to charity — can reduce the overall tax burden across generations.
Passing to the next generation
A beneficiary may wish to pass assets directly to their own children, skipping a generation to preserve wealth and reduce IHT on the intermediate estate.
Charitable giving
Assets redirected to charity in a deed of variation are treated as if the deceased gave them, potentially reducing the IHT rate on the rest of the estate to 36% if more than 10% of the net estate passes to charity.
Correcting an outdated will
If a will was made many years ago and no longer reflects the deceased's apparent wishes, beneficiaries can agree to vary its effect to better reflect what they believe the deceased would have wanted.
Providing for someone omitted
A deed of variation can provide for a person who was accidentally or unfairly omitted from a will — for example, a new grandchild born after the will was made.
The 2-year time limit
A deed of variation must be executed within 2 years of the date of death to qualify for the tax treatment described above, under section 142 of the Inheritance Tax Act 1984. This is a strict deadline — it cannot be extended.
If the deed is executed after 2 years, it can still redirect assets — but it will be treated as a gift by the beneficiary, not as part of the original estate. This means the 7-year potentially exempt transfer rules will apply, and the beneficiary's own nil rate band may be affected.
How a deed of variation works
- All affected beneficiaries must agree and sign the deed — those losing assets cannot be forced to agree
- The executors of the estate must be notified
- If less IHT is payable as a result of the variation, HMRC must also be notified
- The deed must include a written election claiming the backdating treatment under s.142 IHTA 1984
- It can cover all assets or just a specific part of the estate
- It can be used whether or not the deceased left a will
Tax implications
For the backdating election to be valid for IHT purposes, the deed must state that the parties intend it to have effect under section 142 IHTA 1984. A separate election is needed for CGT purposes if the variation affects chargeable assets.
Getting the drafting right is critical. An incorrectly drafted deed can fail to achieve the intended tax savings. Professional advice is strongly recommended. For more on inheritance tax planning, read our guide to inheritance tax for UK families.
Frequently asked questions
What is a deed of variation?
A deed of variation is a legal document that allows one or more beneficiaries to redirect assets they have inherited — either from a will or under intestacy — to another person or to a trust. It must be made within 2 years of the date of death and, for tax purposes, must include a specific election clause.
Why would you use a deed of variation?
Deeds of variation are most commonly used for inheritance tax planning — redirecting assets to charity (which is exempt from IHT), to skip a generation (passing directly to grandchildren), or to correct an outdated will that no longer reflects the deceased's actual wishes.
What is the time limit for a deed of variation?
A deed of variation must be executed within 2 years of the date of death to be treated as if the original will or intestacy had been drafted that way for tax purposes. After 2 years, a variation can still be made, but it will be treated as a gift from the beneficiary rather than part of the estate.
Does a deed of variation require consent from all beneficiaries?
Yes. All beneficiaries whose inheritance is being reduced or redirected by the variation must consent in writing. The executors of the estate must also be notified. If HMRC is owed less tax as a result, HMRC's consent is also required.
Do you need a solicitor for a deed of variation?
A deed of variation is a formal legal document that must be correctly drafted to be effective for tax purposes. While it is not legally required to use a solicitor, professional advice is strongly recommended. An incorrectly drafted deed may not achieve the intended tax savings.