Deed of Variation After Death: How Beneficiaries Can Redirect an Inheritance to Save Tax or Benefit Different People

Introduction

When someone dies and their will is read, the distribution seems final—what they have left goes to the people named in the document. But UK estate law offers a powerful, time-limited planning opportunity: beneficiaries can change the distribution of an inheritance after death through a legal instrument called a deed of variation. This allows heirs to redirect assets to other family members, to charity, or into trusts, with the tax effects treated as if the deceased had made the changes in their will [1].

For many families, a deed of variation is not a correction of a mistake—it is an essential estate planning tool. When a will is written, inheritance tax (IHT) circumstances may be unclear, or family situations may shift. A deed of variation allows beneficiaries to retrospectively optimize the tax position of an estate, often saving tens of thousands of pounds in inheritance tax and capital gains tax (CGT).

The catch is time: you have exactly two years from the date of death to execute a deed of variation and elect for the tax effects to apply. Miss that deadline, and the opportunity is gone forever.

This guide explains what a deed of variation is, how it works, when it can be used, how to draft one, and how it can reduce inheritance tax—with a worked example showing real IHT savings on a two-generation estate.

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What Is a Deed of Variation?

A deed of variation is a formal written legal document signed by one or more beneficiaries of a deceased person's estate. It states that the beneficiary or beneficiaries are voluntarily changing the distribution of their inheritance. Instead of receiving what the will (or intestacy rules) originally left to them, they direct that asset to be given to someone else—often another family member, a trust, or a registered charity [2].

In tax law, a deed of variation is treated as if the deceased person themselves had made the change in their will. This is because section 142 of the Inheritance Tax Act 1984 and section 62(6) of the Taxation of Chargeable Gains Act 1992 provide that variations made within two years of death, and notified to HMRC in the correct form, take effect retrospectively for tax purposes [3], [4].

The key difference between a deed of variation and a simple gift: a gift made by a beneficiary out of their own pocket is a new transfer of value by that beneficiary, subject to CGT and potentially to IHT if they die within seven years. A deed of variation redirects an inherited asset before it is received by the original beneficiary, so no transfer of value occurs.

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Who Can Use a Deed of Variation?

Only beneficiaries—not executors, not the estate itself—can execute a deed of variation. A beneficiary includes:

• Any person named in the will as a beneficiary.
• Any person who would inherit if the deceased died intestate (spouse, children, parents, siblings, and more distant relatives under the intestacy rules).
• A person with a beneficial interest in a trust created by the will.

All beneficiaries negatively affected by the variation must agree and must have signed the deed. For example, if a parent's will left £100,000 to child A and £100,000 to child B, and child A wants to vary their share to child C (a grandchild), both child A and child B must sign the deed—because child B's share might be affected depending on how the estate is managed.

Beneficiaries must be at least 18 years old and of sound mind. A deceased beneficiary cannot execute a deed of variation (though their personal representatives may, under specific conditions) [5].

The executor can advise beneficiaries about the tax benefits of a variation, but the executor does not sign the deed. The executor's role is to cooperate with the variation—that is, to distribute assets in accordance with the deed once it is executed.

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What Can Be Varied?

A deed of variation can rearrange almost any aspect of the inheritance, provided it affects property that was "comprised in the estate" immediately before death:

• Specific assets: One beneficiary can direct a specific house, car, or investment account to another beneficiary or trust.
• Shares of residue: If the will leaves "the remainder of my estate" to beneficiaries in equal shares, a beneficiary can vary their share to another person.
• Intestacy entitlements: If someone dies without a will, beneficiaries can use a deed of variation to change how their entitlement under the intestacy rules is distributed.
• Charitable gifts: A beneficiary can redirect part or all of their share to a registered charity to reduce the IHT rate on the estate.
• Creation of trusts: Beneficiaries can use a deed of variation to create a trust (e.g., a nil-rate band discretionary trust) that did not exist in the original will.

A deed of variation cannot:

• Vary lifetime gifts made by the deceased before death.
• Create arrangements in which the deceased (or anyone on their behalf) receives a benefit.
• Redirect assets in a way that would trigger an anti-avoidance rule.
• Be used in a way that is solely tax-driven with no legitimate family or personal reason—though in practice, tax planning is a legitimate reason.

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The Two-Year Window: A Critical Deadline

The deadline for executing a deed of variation is two years from the date of death—not two years from the grant of probate, not two years from the distribution of the estate, but from the date the person died [2].

Why This Deadline Matters

If a deed of variation is signed after the two-year deadline:

• It has no effect for inheritance tax purposes. The deed is a valid legal document, but HMRC will not recognize the retrospective change.
• It has no effect for capital gains tax purposes.
• It may still be effective as a simple gift or reassignment of assets between the beneficiaries, but all the tax benefits are lost.

Timing Within the Two Years

The variation does not need to wait for probate. Beneficiaries can execute a deed of variation before the grant of representation is obtained, and this is often advisable when time is short or when assets need to be redirected quickly. The variation takes effect immediately when signed (and, for tax purposes, as if it occurred on the date of death).

How to Track the Deadline

If a person died on 10 April 2024, the two-year window closes on 9 April 2026 at midnight. Any deed of variation executed on or before 9 April 2026 qualifies; any executed on 10 April 2026 or later does not.

Action point: If you are administering an estate and considering a variation, take action now. Draft the deed, circulate it for signature, and execute it well before the second anniversary of death. Waiting until month 20 or month 22 is risky—legal delays, missing signatories, or unforeseen complications can cause the deadline to be missed.

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Tax Elections: The Heart of a Deed of Variation

For a deed of variation to work for tax purposes, it must contain explicit tax elections stating that the beneficiary(ies) are requesting that the variation be treated under section 142 of the Inheritance Tax Act 1984 and section 62(6) of the Taxation of Chargeable Gains Act 1992.

Section 142 Election: Inheritance Tax Read-Back

When section 142 conditions are satisfied, the variation is not a transfer of value by the beneficiary making it. Instead, HMRC treats the altered distribution as if the deceased had made it [1].

This is the key to IHT planning: because the change is treated as made by the deceased, it is not subject to the normal rules for gifts by living people (which would require survival by seven years to be IHT-free). The estate's IHT liability on death is calculated based on the varied distribution, not the original will.

Section 62(6) Election: Capital Gains Tax Read-Back

Under section 62(6) of the Taxation of Chargeable Gains Act 1992, a variation or disclaimer within the two-year window does not constitute a disposal for CGT purposes [3].

This means:

• When a beneficiary receives an inherited asset (e.g., a house or investment account), the base cost for CGT is the market value at the date of death.
• If that beneficiary then redirects the asset via a deed of variation to another person, no CGT is triggered on the variation itself.
• The new recipient steps into the shoes of the original beneficiary and receives the same base cost.

Without the section 62(6) election, a beneficiary who received an asset and then transferred it to another person would trigger a CGT liability.

How to Include the Elections

A properly drafted deed of variation will include a clause confirming that all parties wish the variation to be treated under section 142(1) of the Inheritance Tax Act 1984 and section 62(6) of the Taxation of Chargeable Gains Act 1992 in writing. The document should cite these sections explicitly, and all beneficiaries who are party to the deed must sign the clause confirming the election.

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Key IHT Uses for a Deed of Variation

1. Redirecting Assets to a Surviving Spouse to Claim Spousal Exemption

The most common scenario:

• First spouse dies; their will leaves everything to the surviving spouse (so no IHT is paid on the first death due to the spousal exemption, but the entire estate passes into the survivor's estate).
• On the second spouse's death, the combined estate is very large and triggers significant IHT.

Using a deed of variation on the first death, assets can be redirected away from the surviving spouse into a discretionary trust or to the children. This removes assets from the survivor's taxable estate, reducing the IHT bill on the second death.

2. Creating a Nil-Rate Band Discretionary Trust

When a spouse dies, their nil-rate band (the amount each person can leave free of IHT, currently £325,000 per person as of 2026) goes unused if everything passes to the surviving spouse under the spousal exemption.

A deed of variation can redirect up to £325,000 (or the available nil-rate band) into a discretionary trust on the first death. The surviving spouse can remain a beneficiary of this trust and draw income or capital from it, but the capital is outside their taxable estate. When the surviving spouse later dies, that capital is not taxed again.

3. Redirecting to Charity to Claim the Reduced IHT Rate

If the deceased's estate is left to a mix of family and individuals, IHT is charged at 40% on the amount above the nil-rate band. However, if 10% or more of the net estate is left to a registered charity, the IHT rate on the remainder drops to 36%.

A deed of variation can retrospectively redirect assets to a charity to trigger this reduced rate, saving 4% of the IHT on the rest of the estate.

Example: An estate of £1 million attracts £270,000 IHT at 40% (£1m minus £325k NRB, times 40%). If a deed of variation redirects £100,000 to a charity, the IHT drops to £270,000 × (36%/40%) = £243,000 on the remaining £900,000—a saving of £27,000.

4. Redirecting from Spouse to Children to Use Both Nil-Rate Bands

When the first spouse dies and everything goes to the surviving spouse, the first spouse's nil-rate band is wasted. The surviving spouse then has their own nil-rate band, but the assets from the first spouse's estate soak up the survivor's allowance when they later die.

A deed of variation can split the first spouse's estate:

• Leave up to £325,000 (the NRB) to the children or a trust for them.
• Leave the remainder to the surviving spouse (spousal exemption).

This way, both nil-rate bands are used across the two deaths, and more wealth passes to the next generation free of IHT.

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Worked Example: Two-Generation IHT Planning

Scenario:

• John dies on 1 April 2024, leaving an estate of £950,000.
• His will leaves everything to his wife, Mary.
• Mary is 72 and in good health, but her own assets total £800,000, so her estate on death will be substantial.
• John and Mary have two adult children.

Original Position (No Deed of Variation):

On John's death:

• Estate: £950,000
• Left to Mary: £950,000
• IHT: £0 (spousal exemption applies)
• Mary's estate after receiving John's assets: £950,000 + £800,000 = £1,750,000

On Mary's death (assume 10 years later):

• Estate: £1,750,000
• Nil-rate band: £325,000
• Taxable amount: £1,750,000 - £325,000 = £1,425,000
• IHT at 40%: £1,425,000 × 40% = £570,000
• Net to children: £1,750,000 - £570,000 = £1,180,000

With a Deed of Variation (Section 142 Election):

Mary and her solicitor decide, within two years of John's death, to execute a deed of variation. The variation redirects £325,000 (John's unused nil-rate band) into a discretionary trust for Mary and the children, with the remainder (£625,000) left to Mary outright.

On John's death (now with variation):

• Estate: £950,000
• To discretionary trust: £325,000
• To Mary: £625,000
• IHT: £0 (both amounts inherit within nil-rate band and spousal exemption)
• Mary's estate after receiving John's assets: £625,000 + £800,000 = £1,425,000
• Discretionary trust balance: £325,000 (outside Mary's estate)

On Mary's death:

• Mary's estate: £1,425,000
• Nil-rate band: £325,000
• Taxable amount: £1,425,000 - £325,000 = £1,100,000
• IHT at 40%: £1,100,000 × 40% = £440,000
• Net from Mary's estate to children: £1,425,000 - £440,000 = £985,000
• Plus discretionary trust (untaxed): £325,000
• Total to children: £1,310,000

IHT Saving:

• Without variation: £1,180,000 to children
• With variation: £1,310,000 to children
• Saving: £130,000

The variation preserved John's unused nil-rate band, kept £325,000 outside Mary's taxable estate, and reduced the combined IHT bill on two deaths from £570,000 to £440,000.

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Capital Gains Tax Implications

Base Cost and the Step-Up in Value on Death

When someone inherits an asset, their base cost for CGT purposes is the market value of that asset on the date of death. This "step-up" means that if the asset has risen in value during the deceased's lifetime, no CGT is owed on that appreciation. Only gains accruing after death are taxable.

How a Deed of Variation Preserves the Base Cost

When a beneficiary uses a deed of variation to redirect an inherited asset to another person, section 62(6) ensures that no CGT is triggered on the variation itself. The new recipient inherits the same base cost (the value on the date of death) as the original beneficiary would have had.

Example:

• Jane dies; her house is worth £400,000 at death.
• The will leaves the house to her daughter Sophie.
• Before taking possession, Sophie and her brother Tom execute a deed of variation redirecting the house to Tom instead.
• Tom's base cost is £400,000 (the date-of-death value), not the value when Sophie received it.
• Tom can later sell the house without any CGT liability on the appreciation from death to sale.

If Sophie had instead taken the house and then transferred it to Tom without a deed of variation, the transfer would be a disposal by Sophie, triggering CGT on any gain between the date of death and the transfer date.

Interaction with Other CGT Rules

A deed of variation does not change the underlying CGT treatment of the assets themselves. For example:

• A house that is the deceased's principal residence receives the principal private residence exemption from CGT; a deed of variation does not change this.
• Assets held in a trust are still subject to the settlor's CGT rules; a deed of variation does not create a new settlor (the original deceased is still the settlor for these purposes).

Beneficiaries should take advice on the interaction between the deed of variation and any anti-avoidance rules if the variation results in the creation of a settlement.

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What a Deed of Variation Cannot Do

A deed of variation is powerful but not unlimited:

1. Cannot vary lifetime gifts: If the deceased made a gift of property during their lifetime (e.g., a gift of shares to an investment account), a deed of variation cannot undo or redirect that gift. The deed can only rearrange the deceased's estate at death.

2. Cannot benefit the deceased: A variation that arranges for any property or benefit to pass back to the deceased (or on trust where the deceased can benefit) is invalid. This prevents using variations to avoid IHT on property that should be in the deceased's taxable estate.

3. Cannot apply to property acquired before death but settled as part of the estate plan: This is a complex area, but broadly, only property "comprised in the estate" at death can be varied.

4. Cannot be made for consideration: Technically, a deed of variation can be made for consideration (e.g., one beneficiary pays another for a variation), but if consideration is provided, the tax elections under sections 142 and 62(6) are lost. Deeds of variation are almost always made without consideration.

5. Cannot avoid anti-avoidance rules: If a variation would fall foul of anti-avoidance provisions (e.g., rules against circular transactions), it will not be effective for tax purposes.

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Drafting a Deed of Variation: Cost and Process

Who Drafts It?

A deed of variation is most commonly drafted by:

• The estate's solicitors (if probate is being handled by a solicitor).
• A tax advisor or accountant with IHT expertise.
• Specialist probate or trust solicitors.

Some beneficiaries use template deeds or online legal services, but given the tax implications and the strict requirements, professional advice is strongly recommended.

What the Document Must Contain

A valid deed of variation must include:

1. Identification of the deceased, the date of death, and the original disposition (will or intestacy).
2. Description of the assets or share being varied.
3. Statement of the variation: what is being given up and to whom.
4. Tax elections: explicit statements that the parties wish the variation to be treated under section 142 of IHTA 1984 and section 62(6) of TCGA 1992.
5. Signatures of all beneficiaries who are party to the deed, usually witnessed.
6. Execution as a deed: the document must be executed with the formality of a deed (dated, signed, and witnessed), though it does not need to be signed by an executor.

Cost

The cost of drafting a deed of variation typically ranges from £300 to £1,500, depending on the complexity of the estate and whether the solicitor is already handling probate. For estates with substantial tax savings, this cost is easily recouped.

Notification to HMRC

If the deed of variation decreases the amount of IHT payable, notification is optional but often made on the inheritance tax return.

If the deed of variation increases the amount of IHT due (a rare scenario), a copy must be sent to HMRC within six months of execution [2]. This ensures that any additional IHT can be assessed and collected.

In practice, when a variation is made for tax planning purposes, solicitors will usually notify HMRC proactively and confirm the variation on the estate's IHT return, creating a clear audit trail.

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Interaction with Probate and Ongoing Estate Administration

A deed of variation can be executed at any point during the two-year window—before probate is granted, during administration, or even after distribution. However, timing affects the practical steps:

Before Grant of Probate

Executing the deed before probate is obtained can be advantageous:

• The variation is clear from the outset, so the executor can distribute assets in accordance with the varied terms without needing to recall assets or make subsequent transfers.
• HMRC can be notified of the variation on the original IHT return (Form IHT 400 and schedules), simplifying compliance.

After Probate but Before Distribution

If beneficiaries decide to vary their inheritance after the grant but before assets are distributed, the executor simply redirects the assets to the new beneficiaries in accordance with the deed.

After Distribution

If assets have already been distributed to beneficiaries, a deed of variation can still be executed to redirect those assets to other parties. However, the original beneficiary receives the assets and then transfers them to the new beneficiary. Even with section 62(6) protection, this creates more administrative complexity and may trigger other tax issues.

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Frequently Asked Questions

Q1: Does a deed of variation have to be a formal deed?

A: For IHT purposes under section 142, the variation must be made "by an instrument in writing." A deed (signed and witnessed with the formality of a legal deed) is the standard form, but strictly speaking, a less formal written document might suffice—provided all the required information is clearly set out and signed by all parties. However, professionals almost always use a deed because it provides the certainty that HMRC requires and because a deed is more robust if ever challenged.

Q2: What if one of the beneficiaries is a minor?

A: A beneficiary must be at least 18 years old to execute a deed of variation in their own right. If an intended beneficiary is a minor, the variation cannot include them as a signatory. In some cases, a parent or guardian can act on behalf of a minor, but this is complex and requires specialist advice. It is often simpler to exclude the minor beneficiary from the deed.

Q3: Can a beneficiary vary only part of their entitlement?

A: Yes. A beneficiary can redirect a specific sum or a specific asset, leaving the rest of their entitlement as originally left in the will. For example, a beneficiary can say "I vary my entitlement of £200,000 to go instead to my son," leaving other assets to themselves.

Q4: What happens if beneficiaries disagree about a variation?

A: If one beneficiary wants a variation but another refuses to sign (and their consent is needed), the variation cannot proceed. There is no mechanism to force a beneficiary to agree. However, if the variation does not adversely affect a particular beneficiary's entitlement, that beneficiary's signature may not be required.

Q5: Can a deed of variation be reversed or amended?

A: Once executed and the two-year window has passed, a deed of variation cannot be reversed or amended in a way that triggers the tax elections again. If beneficiaries later change their minds, they cannot "undo" the variation for tax purposes. However, they can make a subsequent gift to each other (which will be subject to normal gift tax rules). Before executing a deed of variation, beneficiaries should be certain of their intentions.

Q6: Is a deed of variation affected by divorce or estrangement?

A: A deed of variation is a legal commitment by the beneficiaries who sign it. If beneficiaries later divorce or fall out, the deed remains in effect. The deed does not give either party the right to unwind the arrangement. Beneficiaries should think carefully about long-term relationships before varying assets in favor of a spouse or ex-spouse.

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Conclusion: A Time-Limited Planning Opportunity

A deed of variation is one of the most effective tools in UK estate planning—because it allows beneficiaries to optimize the tax treatment of an inheritance after death, treating the redirection as if the deceased had chosen it. The opportunity to save tens of thousands of pounds in inheritance tax and capital gains tax is real, but the two-year deadline is absolute.

If you are administering an estate or have recently inherited, and if the estate is substantial or the original will was drafted many years ago, a deed of variation should be considered as part of the post-death planning process. The cost of professional advice is minimal compared to potential IHT savings.

The two-year window will not wait. Act early, take advice, and do not let this planning opportunity slip by.