Deed of Variation After Death: Redirecting Inheritance to Save Tax

A deed of variation is one of the most powerful tools available to families after a bereavement. It allows beneficiaries to fix tax planning that the deceased did not make before death — redirecting assets to reduce inheritance tax, skip a generation, or support a charity the family cares about. But it must be done correctly and within the 2-year time limit.

What a Deed of Variation Does

When someone dies, their estate is distributed according to their will (or the intestacy rules if there is no will). A deed of variation allows the beneficiaries who receive assets under that distribution to redirect those assets to a different destination — even though they are legally entitled to them.

The key provision is in section 142 of the Inheritance Tax Act 1984 (and section 62 of the Taxation of Chargeable Gains Act 1992 for CGT). These provisions state that if the deed includes the correct election wording, HMRC will treat the variation as if the deceased person had made those dispositions themselves in their will. In other words, for tax purposes, the original beneficiary is treated as having never inherited those assets at all.

Without this election, the variation would simply be treated as a gift from the beneficiary to whoever receives the assets instead — starting the 7-year clock and potentially creating a fresh IHT exposure.

Tax Benefits: Why Families Use Deeds of Variation

There are several common reasons why families vary a will or the intestacy distribution after death:

• Redirecting to charity: Assets left to charity are exempt from IHT. If the deceased did not leave anything to charity in their will but the family wishes to do so, varying the will to redirect a gift to charity can create an IHT exemption. Additionally, if the variation brings the charitable bequest to 10% or more of the net estate, the reduced 36% IHT rate (rather than 40%) may apply to the remainder.
• Redirecting to a surviving spouse: Gifts between spouses and civil partners are exempt from IHT. If assets passed to adult children or other relatives but the family now prefers them to go to the surviving spouse, a variation can achieve this with no IHT cost. The surviving spouse can then make their own estate planning decisions about those assets.
• Skipping a generation: If an adult child inherits but already has a substantial estate, they may choose to redirect the inheritance directly to their own children. This prevents the inherited assets from being counted in the adult child’s estate if they die within 7 years.
• Creating a trust: Assets can be varied into a trust structure, which can defer IHT liability, protect assets for vulnerable beneficiaries, or allow more flexible distribution to future generations.

Who Must Sign: Consent Requirements

A deed of variation cannot be made unilaterally. Every beneficiary who is surrendering or reducing their entitlement must sign the deed. This means:

• If the estate is being redistributed from three adult children equally, and all three agree to redirect their shares, all three must sign.
• If only one of three children wants to vary their share (while the other two keep theirs), only the one varying needs to sign — but the variation only affects their portion.
• The executor of the estate does not need to sign the deed (unless the variation increases the IHT payable, in which case HMRC requires the executor’s signature confirming they agree to pay the additional tax).

All parties who sign must be adults with full legal capacity. They must understand what they are agreeing to and that they are permanently giving up their entitlement (or part of it) to the redirected assets.

The Problem of Minors: Why Children Cannot Consent

If a beneficiary named in the will (or entitled under intestacy) is a minor — someone under 18 — they cannot validly consent to varying their entitlement. A parent or guardian cannot sign on their behalf unless the Court of Protection has authorised them to do so.

In practice, this means that if a will leaves assets to both adult beneficiaries and minor children, it may not be possible to vary the minor children’s entitlement without a court application. The Court of Protection will only approve such a variation if it can be shown to be in the minor’s best interests.

This is a significant practical limitation. Families who want to vary an estate where grandchildren or other young people are beneficiaries should take legal advice before assuming the variation is straightforward.

The 2-Year Time Limit and the Residence Nil-Rate Band

The deed of variation must be executed within 2 years of the date of death. This is a hard deadline — there is no mechanism for HMRC to extend it, and courts have confirmed that a deed executed even one day late does not benefit from the statutory tax treatment.

Given that estates often take 12 months or more to administer, and that families may not be thinking about estate planning in the early months following bereavement, the 2-year window can pass more quickly than expected. It is sensible to discuss the possibility of a deed of variation with a solicitor as soon as the estate is reasonably settled — typically once probate has been granted.

One specific area where deeds of variation interact with the residence nil-rate band (RNRB) deserves attention. The RNRB is available where a qualifying residential property passes to direct descendants. If the will did not leave the property to direct descendants but the family wishes to use the RNRB, a deed of variation redirecting the property to a child or grandchild could unlock the relief. This can save up to £175,000 (or £350,000 for a couple where the first-to-die spouse’s RNRB was unused) in IHT.

If a deed of variation changes the IHT position of the estate — whether it increases or decreases the liability — the executor must notify HMRC and the IHT400 (or excepted estate return) may need to be amended. A solicitor experienced in estate planning should advise on this as part of drafting the deed.