Losing a loved one is never easy, and sorting out their estate can feel overwhelming. Sometimes, after a death, beneficiaries realise that the way assets are distributed isn’t quite right for their family’s needs or tax position. A deed of variation is a legal tool that lets beneficiaries change how an inheritance is shared out—without rewriting the will or starting from scratch. Used correctly, it can help families support younger generations, reduce tax, or honour promises made by the deceased.
What Is a Deed of Variation?
A deed of variation is a formal document that allows beneficiaries to redirect all or part of their inheritance to someone else. If it’s completed within two years of the death, and includes the right statements, the law treats the gift as if it was made by the deceased. This can have big advantages for inheritance tax (IHT) and capital gains tax (CGT).
Key Rules and Conditions
Two-year window: The variation must be signed and dated within two years of the person’s death. Miss this deadline and you lose the tax benefits.
Tax statement: The document must include a clear statement that the parties intend the variation to take effect for IHT (and, if relevant, CGT) purposes. Without this, HMRC won’t treat the gift as coming from the deceased.
Who must sign: Anyone whose share is reduced by the change must sign the deed. If a minor’s entitlement is affected, a parent or guardian cannot sign for them—court approval is needed.
Personal representatives: If the variation increases the estate’s tax bill or affects how the estate is administered, the executors or administrators may need to sign. This isn’t always required, but it’s best to check if the change is significant.
What Can You Do with a Deed of Variation?
Partial changes: You don’t have to rewrite the whole will. You can redirect a specific gift, a percentage of the estate, or even just the residue.
No consideration: The variation must be a genuine gift, not in return for payment or any other benefit. If money changes hands, the tax treatment is lost.
Charity planning: Redirecting 10% or more of the estate to charity can reduce the IHT rate on the rest of the estate from 40% to 36%. This is a popular way to support a cause and save tax.
Practical Examples
Helping grandchildren directly: Imagine your mother leaves £50,000 to you, but you want it to go to your children instead. You sign a deed of variation within two years, including the tax statement. For IHT purposes, it’s as if your mother made the gift to her grandchildren, not you. This can help with generational planning and avoid extra tax charges.
Securing the reduced rate: Suppose several siblings inherit an estate, but they want to support a local charity. By redirecting enough to meet the 10% test, the IHT rate on the rest of the estate drops, leaving more for the family and the charity.
How to Create a Deed of Variation
Draft the document: It should clearly state what is being changed, who is affected, and include the required tax statement. You can find templates online, but for anything complicated, consider getting help to ensure the wording is correct.
Get the right signatures: All affected beneficiaries must sign. If a minor’s share is involved, apply to the court for approval.
Keep a complete paper trail: File the deed with the estate records and send a copy to HMRC if the change affects IHT or CGT. This helps avoid confusion later and proves you met the deadline.
Coordinate with the estate’s tax position: If the variation changes the IHT bill, make sure the personal representatives are aware and any extra tax is paid promptly.
Pitfalls to Avoid
Missing the two-year deadline: If you wait too long, the variation won’t be effective for tax purposes. Act quickly if you’re considering a change.
Incorrect or missing tax statement: Without the right wording, HMRC will treat the gift as coming from the beneficiary, not the deceased, which can trigger extra tax.
Varying a minor’s entitlement without court approval: This is not allowed. If a child’s share is being redirected, you must apply to the court for permission.
Assuming executors never need to sign: If the change increases tax or affects how the estate is managed, their agreement may be needed. Always check if the variation will impact the administration.
Worked Example: Bringing It to Life
Let’s say your father’s will leaves his estate equally to his three children. One child, Jane, wants her share to go to her own children instead. Jane signs a deed of variation within two years, including the tax statement. The variation is filed with the estate records and sent to HMRC. The inheritance is treated as if Jane’s father left it directly to his grandchildren, which can help with IHT planning and avoid extra charges if Jane’s own estate is large.
Key Takeaway
Deeds of variation are flexible and powerful, but strict rules apply. The two-year time limit and correct tax wording are essential. Always keep clear records, coordinate with the estate’s tax position, and check if court approval or executor agreement is needed. Used wisely, a deed of variation can help families support each other, honour promises, and manage tax efficiently.
Disclaimer: This article is for general information only and does not constitute legal, financial or tax advice. Every estate is different, and outcomes depend on your specific circumstances. Take time to familiarise yourself with the rules and keep your paperwork up to date.