Deed of Variation: Redirecting an Inheritance After Death

A deed of variation is a legal document that allows the beneficiaries of an estate to alter how an inheritance is distributed after the person has died. It can redirect a gift to a different person or charity, adjust the proportions between beneficiaries, or restructure what the deceased's estate passes on. Crucially, when it is done correctly and within the required time limit, the law treats the variation as if the deceased had made it themselves, with significant tax advantages.

A deed of variation can be used whether the estate is governed by a will or by the intestacy rules.

Why people use a deed of variation

The most common reasons for varying an inheritance include:

• Reducing inheritance tax: passing assets down a generation or to charity to reduce the IHT bill on the estate or on a beneficiary's future estate
• Redirecting to someone who needs the money more: a beneficiary who is comfortably off may redirect their share to a sibling, child, or other relative in greater financial need
• Correcting mistakes in a will: if the will did not reflect the deceased's intentions because of an oversight or drafting error, a variation can achieve the intended result
• Equalising shares: adjusting unequal distributions to reflect what the family considers fair
• Taking advantage of charitable relief: gifts to registered charities are exempt from IHT, and if 10% or more of the net estate passes to charity, the IHT rate on the remainder falls from 40% to 36%
• Avoiding the beneficiary's own IHT or estate complications: if a beneficiary is elderly or unwell, receiving additional assets may increase their own future estate and IHT position; a variation can redirect those assets to the next generation now

The two-year time limit

A deed of variation must be executed within two years of the date of death. This is a strict statutory deadline under section 142 of the Inheritance Tax Act 1984 (for IHT purposes) and section 62(6) of the Taxation of Chargeable Gains Act 1992 (for CGT purposes). There is no mechanism to extend the deadline and no discretion for HMRC or the courts to accept a variation made after two years has elapsed.

Starting the process early is important. In practice, the estate often needs to be substantially administered and the assets valued before a variation can be properly structured, which means there may be less time available than the two-year window suggests.

The tax treatment

The key advantage of a deed of variation is the "reading back" treatment for tax purposes. When the deed includes the correct statutory elections, HMRC treats the variation as if the deceased had made it in their will. The practical effect is:

• For IHT: the redirected assets are treated as having passed directly from the deceased to the new beneficiary, not from the original beneficiary to the new one. This means the original beneficiary is not treated as having made a gift for IHT purposes, and there is no question of a potentially exempt transfer starting a seven-year clock.
• For CGT: the "uplift" on death (where assets are treated as acquired at market value on the date of death, with no capital gains tax on any increase in value since the deceased purchased them) carries through to the new beneficiary. They step into the shoes of the original beneficiary as if they had inherited directly from the deceased at the death value.

These elections must be expressly included in the deed. If they are omitted, the variation still takes effect legally but without the beneficial tax treatment. The original beneficiary would instead be treated as having made a gift of the redirected assets, with potential IHT and CGT consequences.

Who needs to consent

All affected parties must agree to the variation and sign the deed. "Affected" means anyone whose entitlement is reduced or altered as a result. A beneficiary whose share increases, or who is not mentioned in the variation, does not need to sign.

If a minor is among the affected parties, they cannot consent on their own behalf and a court order is needed to approve the variation on their behalf. This adds time and cost to the process.

If any affected party refuses to consent, the variation cannot proceed. There is no way to force a beneficiary to agree to a deed of variation.

The IHT notification requirement

No court approval is needed for a deed of variation. However, if the variation results in more IHT being payable on the estate than was originally the case, the personal representatives (executors or administrators) must also be party to the deed. And if the variation produces an IHT saving, it must be notified to HMRC within six months of the date of the deed using form IOV1.

If the original IHT position has already been settled and the variation reduces what HMRC received, a repayment can be claimed. HMRC will review the variation and issue any repayment once satisfied.

What a deed of variation must contain

To be effective, a deed of variation must:

• Be in writing
• Clearly identify the estate and the will or intestacy rules being varied
• Clearly identify what is being redirected and to whom
• Be signed by all affected parties
• Contain an express statement (the "section 142 election" and/or "section 62 election") if IHT and/or CGT reading-back treatment is intended
• Be dated

There is no prescribed form. Many solicitors use their own standard deed. It is strongly advisable to use a solicitor experienced in private client work, as an incorrectly drafted deed may fail to achieve the intended tax treatment.

A practical example: passing down a generation to save IHT

Consider a widow who inherits £300,000 from her husband's estate. She already has substantial assets of her own and does not need the money. Her own estate is already likely to attract IHT at 40% on her death.

If she accepts the inheritance, the £300,000 will sit in her estate and may attract IHT of £120,000 on her death (40% of £300,000). If instead she executes a deed of variation redirecting the £300,000 to her adult children, the reading-back treatment means no IHT is charged at this stage (the original estate had a spouse exemption), and the children receive the assets without the widow having made a gift and without starting a seven-year clock.

The saving in this example is up to £120,000, achievable simply by completing the correct legal document within two years of the death.

Capital gains tax and the death uplift

When someone dies, their assets are treated as if they were acquired at market value on the date of death for CGT purposes. Any gain that accrued during their lifetime is wiped out and not charged to CGT. This is called the CGT uplift on death.

Under a deed of variation with the CGT election, the new beneficiary is treated as if they inherited the asset directly at its death-date value, not the date of the variation. This matters if the assets have increased in value between the date of death and the date the variation is executed. Without the election, the original beneficiary would be treated as having sold the asset at the current value, potentially triggering a CGT charge on the gain since death.

Related guides

• Intestacy rules: who inherits without a will
• Inheritance tax explained
• Nil-rate band and residence nil-rate band
• How to contest a will