Deed of Variation Explained: Redirecting an Inheritance

A deed of variation lets a beneficiary who inherits under a will, or intestacy rules, redirect all or part of that inheritance to someone else. Made within two years of death, it can be read back for Inheritance Tax and Capital Gains Tax as if the deceased had made it.

What a Deed of Variation Is

A deed of variation is a written document, sometimes called an instrument of variation or a deed of family arrangement, by which a beneficiary changes who receives some or all of the inheritance they were entitled to. It can be used whether the beneficiary inherited under the deceased's will or under the intestacy rules where there was no will. Redirecting the inheritance does not require the original beneficiary to have already received the assets; the deed operates on the entitlement itself. More than one beneficiary can use a deed of variation, either through a single joint deed or separate deeds, each dealing with their own share. Government guidance on altering a will or intestacy after death sets out the same core mechanism described here.

The Conditions a Deed of Variation Must Meet

For a deed of variation to be effective, and for the Inheritance Tax and Capital Gains Tax read-back treatment described below to apply, it must satisfy several conditions at once. Missing any one of them means the ordinary rules apply instead, and the redirected inheritance is treated as a gift from the original beneficiary rather than from the deceased. The checklist below reflects the requirements in section 142 of the Inheritance Tax Act 1984 and section 62 of the Taxation of Chargeable Gains Act 1992.

• In writing. A deed of variation must be a written document; an informal or verbal arrangement does not qualify.
• Made within 2 years of the date of death. This is a hard limit, not a guideline; a variation signed after the two years have passed cannot get the tax treatment.
• Signed by the beneficiary or beneficiaries giving up their entitlement. Everyone whose inheritance is being reduced or redirected must sign.
• A tax statement, where relevant. If the variation changes the amount of Inheritance Tax or Capital Gains Tax due, it must state that section 142 of the Inheritance Tax Act 1984 applies for IHT, and, if Capital Gains Tax is also affected, that section 62 of the Taxation of Chargeable Gains Act 1992 applies.
• Agreement of everyone who loses out. A beneficiary cannot use a deed of variation to redirect another beneficiary's share without that person's consent.

Why the Two-Year Time Limit Matters

The two-year window runs from the date of death, not from the date probate or Confirmation is granted, and not from the date the beneficiary actually receives their inheritance. Because probate can itself take several months, and administering an estate longer still, this can leave less time to act than it first appears. A deed of variation signed after the two years have passed may still be a valid redirection as between the people involved, but it loses the special Inheritance Tax and Capital Gains Tax treatment, so the original beneficiary is treated as making an ordinary lifetime gift instead. Where redirecting an inheritance is being considered at all, particularly for Inheritance Tax planning, the two-year point is worth diarising early, well before it becomes urgent, rather than left until close to the deadline.

How the Inheritance Tax Effect Works

When a deed of variation meets the conditions above and includes the required statement, section 142 of the Inheritance Tax Act 1984 treats the variation as if the deceased had left that part of the estate to the new beneficiary directly, rather than as a gift from the original beneficiary who is redirecting it. This "read back" effect is the reason a deed of variation is useful for Inheritance Tax planning: because the redirection is treated as coming from the deceased, it does not count as a new lifetime gift from the original beneficiary, and so does not start a fresh 7-year clock running against that person's own estate. Redirecting to a spouse, civil partner or charity can also bring the spouse or charity exemption into play for the estate, potentially reducing the Inheritance Tax bill. See our guides to Inheritance Tax and the Inheritance Tax 7 year rule for how the underlying rules work.

The Capital Gains Tax Effect

A deed of variation can also affect Capital Gains Tax, which is separate from Inheritance Tax and matters where the redirected asset, for example shares or a second property, has gained value. Where the variation includes a statement that section 62 of the Taxation of Chargeable Gains Act 1992 is to apply, the new beneficiary is treated as acquiring the asset at its value on the date of death, in the same way as if they had inherited it directly from the deceased. Without that statement, the original beneficiary can instead be treated as having made a disposal to the new beneficiary at the point of the variation, which can trigger a Capital Gains Tax charge on any increase in value between the date of death and the date of the deed. Whether the IHT statement, the CGT statement, or both are needed depends on the assets involved and the effect of the redirection, which is why professional advice on the drafting is worth taking.

Common Uses of a Deed of Variation

A deed of variation is most often used for one of three purposes. The first is passing an inheritance down a generation, for example where a parent redirects some or all of an inheritance to their own children or grandchildren, which can keep money out of the parent's own estate for future Inheritance Tax purposes without it counting as a new gift subject to the 7-year rule. The second is redirecting a gift to charity, which can bring assets within the charity exemption and, where the redirection helps the estate reach the 10% of net estate threshold, can qualify the whole estate for the reduced 36% Inheritance Tax rate. The third is equalising an unfair or outdated distribution between beneficiaries, for example where a will has not been updated to reflect a family's current circumstances. In every case, the people who are giving something up must agree to the change.

Who Must Agree, and What a Deed of Variation Cannot Do

A deed of variation only works with the consent of everyone who loses out under it. A beneficiary can redirect their own inheritance, but cannot use a deed of variation to reduce or remove someone else's entitlement without that person also agreeing and signing. Where several beneficiaries are affected, each of them needs to be party to the deed or give their own separate one. There is also a specific restriction on minors: because a minor cannot give the legal consent needed to give up an inheritance, a variation that would reduce or remove a minor's entitlement requires the approval of the court on the child's behalf. Increasing what a minor receives does not need the minor's own consent, since nothing is being given up on their part, though the adult beneficiaries redirecting their own shares must still agree. A deed of variation redirects an existing entitlement; it cannot be used to rewrite the will itself or to settle a genuine dispute about who was entitled to what in the first place, which instead falls under contesting a will.

This article is general information about how deeds of variation work under current HMRC and legislative rules, and is not personalised legal or tax advice. Redirecting an inheritance affects the legal and tax position for everyone involved, so always check current gov.uk and HMRC guidance and take advice from a solicitor or tax adviser before signing a deed of variation, particularly where Inheritance Tax, Capital Gains Tax, or a beneficiary who is a minor is involved. See our guides to Inheritance Tax, the Inheritance Tax 7 year rule and contesting a will, run the numbers with the UK inheritance tax calculator, or see the UK Wills, Probate & Inheritance hub and the United Kingdom hub for the full picture across all four nations.