Deed of variation — UK post-death IHT planning

What a deed of variation does

A deed of variation (sometimes called "instrument of variation") is a legal document by which a beneficiary of a will or intestacy says, in effect: "I would prefer my inheritance to go to someone else (or to a charity, or into a trust)." If the deed meets specific rules, HMRC treats the redirected gift as if the deceased had made it directly — with the tax consequences calculated on that basis.

Key requirements (from Inheritance Tax Act 1984 section 142 + TCGA section 62):

• In writing
• Signed by all beneficiaries affected by the variation
• Made within 2 years of the date of death — strict deadline
• Contains a statement that the variation is to be treated for IHT (and/or CGT) as made by the deceased
• No consideration paid between beneficiaries (a "free" variation; not a sale or exchange)

If those conditions are met, the gift is treated as if the deceased had written it that way in their original will.

Why this matters — the IHT consequence

The crucial point is that the variation is treated as the deceased's gift, not the beneficiary's. This has two big implications:

1. The 7-year IHT clock doesn't restart

If a beneficiary inherits and then voluntarily gives the asset away, the gift starts a fresh 7-year clock from the date of the new gift. The beneficiary has to live another 7 years for the gift to be outside their estate for IHT.

If a beneficiary varies the inheritance via a deed of variation, the gift is treated as coming from the DECEASED. No new 7-year clock. The asset is simply removed from the deceased's estate as if it had never gone to the beneficiary.

2. No "gift with reservation of benefit" issues

If a beneficiary "gives" an asset but continues to use it (e.g. keeps living in the house they "gave" to children), that's a Gift With Reservation of Benefit (GROB) — treated as still in their estate. With a deed of variation, the beneficiary never received the asset in the first place, so GROB doesn't apply.

Common use cases for deeds of variation

1. Skip a generation

The deceased's will leaves £200,000 to their adult son. The son is comfortably off financially and has IHT exposure of his own. He uses a deed of variation to redirect the £200,000 to his children (the deceased's grandchildren). The gift is treated as if the deceased had left it to the grandchildren directly:

• The son's estate is reduced by £200,000 — saving potentially £80,000 of future IHT on his own death
• The grandchildren receive the inheritance now (subject to age, trust arrangements if minors)
• No 7-year clock issue

This is probably the single most common use of deeds of variation.

2. Add a charity legacy to qualify for the 36% IHT rate

If 10% or more of the "baseline amount" (net estate above NRB) goes to charity, the IHT rate on the rest drops from 40% to 36%. A family that didn't structure this in the will can add it retroactively:

• Deceased's net estate above NRB: £500,000
• 10% baseline = £50,000
• If beneficiaries vary the will to redirect £50,000+ to charity, IHT on the rest drops from £200,000 to £162,000 (saving £38,000)
• The beneficiaries' net inheritance is £38,000 charity (gone) + £38,000 less tax savings = net cost £12,000 to family for £50k to charity

This makes charitable bequests genuinely tax-efficient for IHT-liable estates. The family is worse off by less than the charity is better off.

3. Redress an outdated or unfair will

The deceased's will doesn't reflect their later wishes (perhaps not updated for years). Beneficiaries who feel the will is unfair can voluntarily vary it to better reflect what they believe the deceased would have wanted — with the variation treated as if the deceased made it.

Example: an older will leaves everything to one child; another child has been excluded. The included child voluntarily varies the will to share equally with the excluded sibling. The IHT consequences are calculated as if the deceased had split it equally.

4. Provide for an unprovided-for spouse / partner

The deceased's will (written before marriage or before a new partnership) doesn't provide for the surviving spouse / partner. A deed of variation can redirect inheritance from the original beneficiaries (e.g. adult children) to the surviving spouse.

If the variation includes assets transferred to a spouse, the gift becomes a fully exempt spousal transfer for IHT — potentially saving 40% of the redirected amount.

5. Set up a trust retroactively

The will leaves cash to minor grandchildren absolutely. Beneficiaries (or possibly the executors) can vary the gift to be held in trust until age 25, providing protection against teenage spending.

The trust is treated as if the deceased had set it up; for trusts in wills, IHT rules favour the deceased-set-up status.

6. Fix IHT mistakes in the will

The deceased's will didn't optimise IHT (e.g. didn't preserve the RNRB by leaving the home to direct descendants, or missed using the spousal exemption). A deed of variation can retroactively optimise.

Who needs to sign

The deed must be signed by every beneficiary who is giving up an entitlement under the variation. Specifically:

• The beneficiary giving away their inheritance
• Any other beneficiary whose entitlement is affected
• If a minor beneficiary's entitlement is reduced, the Court of Protection may need to approve (a minor's parent can't simply sign away their child's inheritance)

The executors of the will don't need to sign (their role is administrative, not beneficial), unless they're also beneficiaries.

What deeds of variation can't do

• Change the appointment of executors — only the court can
• Vary trust terms once trustees have started administering — once trustees have begun acting, the trust structure is harder to change
• Be made after the 2-year deadline — the deadline is strict; HMRC won't entertain extensions for ordinary cases
• Be made for consideration — if a beneficiary is paid to vary, the variation isn't treated as the deceased's gift
• Affect inheritance from a foreign estate — UK deeds of variation are a UK tax concept; for foreign estates, local rules apply

The practical process

1. Identify the desired changes within the family / among beneficiaries. Agree what should be varied and who gets what instead.
2. Engage a solicitor (typically the same firm that handled probate, though it doesn't have to be). Cost: usually £300-£1,500 depending on complexity.
3. Draft the deed. The deed must explicitly state which gifts are being varied, who receives the redirected gift, and that the variation is to be treated as the deceased's gift for IHT and/or CGT purposes.
4. All affected beneficiaries sign. Witness signatures required.
5. Notify HMRC: send a copy of the deed to HMRC if the variation changes the IHT bill (typically required for variations affecting tax). This is done via the executors / through Form IHT200 / IHT400 amendments.
6. Implement the redirected gifts: the executors then distribute according to the varied terms, not the original will.

Costs and timing

• Solicitor fees: typically £300-£1,500 (more for complex variations involving multiple beneficiaries or trusts)
• HMRC notification: no fee
• Stamp Duty Land Tax (SDLT): usually zero on a pure deed of variation, but watch for SDLT if property changes hands as part of the variation arrangement
• Time to draft and execute: typically 2-6 weeks from instruction to all signatures gathered

Worked example: skip-generation deed of variation

Sarah dies leaving a net estate of £800,000. Her will leaves everything to her son David (no other beneficiaries, single child). Her estate exceeds the IHT thresholds:

• NRB: £325,000
• RNRB (assuming part of estate is residential property and David inherits): £175,000
• Combined thresholds: £500,000
• IHT due: 40% × (£800k − £500k) = £120,000
• David receives £680,000 after IHT

David is 55, has his own estate of £1.2m and significant IHT exposure already. He doesn't need Sarah's full inheritance. He executes a deed of variation redirecting £400,000 to his two children (Sarah's grandchildren), Emma (18) and Tom (22).

Outcome:

• Sarah's IHT bill is unchanged (the variation doesn't reduce her NRB / RNRB use)
• David receives only £280,000 (down from £680,000)
• Emma and Tom receive £200,000 each
• David's eventual estate is £400,000 lower — saving roughly £160,000 of future IHT
• The grandchildren get their inheritance now (potentially deposit money for first homes, etc.)

Worked example: charitable variation to access the 36% IHT rate

James dies with net estate of £1,000,000. His will leaves everything to his sister Mary. IHT exposure:

• NRB only (no spouse, no direct descendants): £325,000
• Above-threshold estate: £675,000
• IHT at 40%: £270,000
• Mary receives: £730,000

The "baseline amount" for the 36% rate test: £675,000. 10% of that = £67,500.

Mary executes a deed of variation redirecting £67,500 to a registered charity. Now:

• The estate qualifies for the 36% IHT rate (because 10%+ goes to charity)
• The taxable amount is now £607,500 (after the charity deduction)
• IHT at 36%: £218,700
• Mary receives: £1,000,000 − £67,500 (charity) − £218,700 (IHT) = £713,800

Compare: without the variation, Mary would have received £730,000. After the variation, she receives £713,800 — she's worse off by £16,200. But the charity receives £67,500. Net benefit to "Mary + charity" combined: £51,300 (the IHT saving of £51,300 was diverted to charity instead of HMRC).

Watch-outs

• 2-year deadline is strict. Diary it from the date of death the moment you think a variation may be needed. After 2 years it's impossible.
• Get all beneficiaries to agree before drafting. Family disagreement can stall variations.
• Minor beneficiaries: can't sign away their inheritance. Either avoid affecting their entitlement, or apply to the Court of Protection.
• CGT implications: the variation can be tax-treated for IHT only, CGT only, or both. Match the elections to what serves the variation's goals.
• Doesn't fix everything: a deed of variation can redirect what the deceased gave; it can't conjure assets the deceased didn't have. Inadequate provision in the will needs to be addressed via the 1975 Inheritance Act (a different mechanism).

Frequently asked questions

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