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A deed of variation is a legal document that allows beneficiaries to redirect assets they have inherited to a different person or entity within 2 years of the date of death. Provided the document includes the right election statement, it is treated for both inheritance tax and capital gains tax purposes as if the original deceased person had made that change — meaning it can reduce or eliminate the IHT bill on the estate as originally distributed.
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.
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.
There are several common reasons why families vary a will or the intestacy distribution after death:
No cost to the beneficiary giving up entitlement
For the variation to receive the statutory tax treatment, it must be genuinely gratuitous — the beneficiary redirecting assets must receive nothing in return. If consideration is paid (for example, one beneficiary pays another to vary the estate), the tax treatment does not apply.
A deed of variation cannot be made unilaterally. Every beneficiary who is surrendering or reducing their entitlement must sign the deed. This means:
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.
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, and a parent or guardian cannot simply sign on their behalf.
The route is the Variation of Trusts Act 1958. Section 1 lets the court approve an arrangement varying trusts on behalf of a person who "by reason of infancy or other incapacity is incapable of assenting" — and it may only do so if carrying out the arrangement "would be for the benefit of that person". That is the High Court, not the Court of Protection; the Court of Protection's jurisdiction under the Mental Capacity Act 2005 is over adults who lack capacity, not over healthy children.
The practical effect is the same either way: where a minor's entitlement is in the mix, a variation stops being a paperwork exercise and becomes a court application, on a timetable that has to fit inside the two years.
Section 142(1) applies only where the dispositions are varied "within the period of two years after a person's death". The two years is a condition of the section itself, so there is nothing for HMRC to extend: an instrument made outside the window simply falls outside s.142, and the redirection is treated as an ordinary gift by the beneficiary instead.
Note too that the statute says "instrument in writing", not "deed". The near-universal name for this document is a deed of variation, and it is usually drawn as a deed, but what s.142 requires is a written instrument signed by the people giving up the benefit and containing the statement of intent.
Given that estates often take 12 months or more to administer, and that families may not be thinking about tax in the early months following a bereavement, the 2-year window can pass more quickly than expected.
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. Note what that is worth: the residence nil-rate band is an allowance of up to £175,000, so unlocking it takes up to £175,000 out of charge and saves up to £70,000 of tax at 40% — or up to £140,000 where a first-to-die spouse’s unused band is also transferred. The band is not itself the saving.
There is a specific statutory duty here, and it is narrower than it is often described. Section 218A of the Inheritance Tax Act 1984 requires that where the instrument contains the s.142 statement and the variation results in additional tax being payable, the relevant persons must deliver a copy of the instrument to HMRC and notify the amount of the additional tax within six months of the day the instrument is made. If any of them does so, the others are discharged. Where the variation reduces the tax, there is no s.218A duty — but a claim to recover tax already paid still has to be put to HMRC, and the IHT400 figures amended, for the reduction to have any effect.
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