Deed of Variation: Redirecting an Inheritance to Save Tax and Correct Unfair Wills

Inheritance planning does not end at the moment of death. UK law provides a powerful post-death planning tool — the Deed of Variation — that allows the beneficiaries of an estate to redirect assets, often with the same tax effect as if the deceased had made the change themselves. Used thoughtfully, a Deed of Variation can equalise estates between spouses, skip a generation, unlock charitable tax benefits, and correct the unintended consequences of a will drafted years before circumstances changed.

What Is a Deed of Variation?

A Deed of Variation (also called a Deed of Family Arrangement or Instrument of Variation) is a formal legal document in which a beneficiary redirects all or part of their inheritance to another person or entity. The critical legal provision is contained in section 142 of the Inheritance Tax Act 1984 and section 62 of the Taxation of Chargeable Gains Act 1992: if the variation is made within two years of the date of death, and the deed contains the appropriate elections, the variation is treated for inheritance tax (IHT) and capital gains tax (CGT) purposes as if it had been made by the deceased themselves.

In plain terms: if a beneficiary redirects £200,000 of their inheritance to their children, that £200,000 is treated for IHT purposes as a gift made by the person who died — not as a gift made by the beneficiary. This avoids the beneficiary making a potentially taxable Potentially Exempt Transfer (PET) from their own estate.

Why Families Use Deeds of Variation

Skipping a generation. If adult children have estates of their own and do not need the inheritance immediately, redirecting assets directly to grandchildren avoids a second IHT charge on the same assets within a generation. Assets passing from grandparent to grandchild via a DoV are treated as having been given by the grandparent.

Equalising estates between spouses. Where one spouse has died, the surviving spouse may have a very large estate while the children of the deceased have received little. A DoV can redirect assets from the surviving spouse's legacy (if inherited) to the children, using IHT nil rate bands more efficiently.

Charitable giving for a reduced IHT rate. If at least 10% of the net estate passes to charity, the IHT rate on the remainder is reduced from 40% to 36%. A beneficiary can use a DoV to redirect part of their inheritance to charity — even if the deceased made no charitable provision — and trigger this reduced rate, potentially generating a net benefit even accounting for the gift.

Correcting a poorly drafted will. A will written a decade before death may not reflect current family circumstances — a divorce, an estrangement, a new grandchild. Where beneficiaries agree, a DoV can redirect the estate as the deceased might have wished had they updated their will.

Using the nil rate band efficiently. If the deceased's will left everything to a surviving spouse (passing IHT-free via spouse exemption), the nil rate band (£325,000 in 2026/27, or £500,000 with the residence nil rate band) may be "wasted" — it transfers to the surviving spouse via the transferred nil rate band, but utilising it directly could save tax if the surviving spouse's estate is large. A DoV can redirect assets equal to the nil rate band to children or a trust, using it directly at the first death and reducing the burden at the second.

Intestacy correction. Where someone dies without a will, the intestacy rules may not reflect the family's wishes. A DoV can redirect intestacy entitlements, subject to all entitled parties agreeing.

Who Can Make a Variation and What They Can Redirect

The fundamental rule: only the person who received the gift can vary it. A beneficiary cannot redirect someone else's inheritance — only their own. If the deceased left £100,000 to each of three adult children, each child can independently vary their own £100,000 share; no one can vary another's share on their behalf.

All parties who give up a benefit under the variation must sign the deed. Where a variation affects the position of a minor or a person lacking mental capacity, court approval may be required — the court must be satisfied that the variation is in the vulnerable person's best interests.

The variation can redirect assets to:

• Individual beneficiaries (adults or minors)
• Charitable organisations
• Discretionary trusts
• Any other entity or purpose

Stamp Duty Land Tax and Property

A notable feature of the DoV rules is that no SDLT arises on the redirection of property via a Deed of Variation. If a beneficiary inherited a house and redirects it to a sibling under a DoV, SDLT is not charged on that transfer. This is an important exception to the normal SDLT rules and makes property redirections via DoV administratively straightforward, though any mortgage liability attaching to the property remains a consideration.

The Process: How to Execute a Deed of Variation

A Deed of Variation is a legal document and should be prepared by a solicitor. The process in outline:

1. Identify the variation. The beneficiary decides what they wish to redirect and to whom.
2. Draft the deed. The deed must clearly identify the assets being varied, the original entitlement, and the new direction. It must contain an election invoking s.142 IHTA 1984 and/or s.62 TCGA 1992.
3. All consenting parties sign. The beneficiary who gives up the entitlement, and any other party who benefits or is affected, must sign. In practice, the personal representatives (executors) should be involved but are not required to sign unless the variation increases the estate's IHT liability.
4. Notify HMRC. If the variation results in additional IHT being payable, HMRC must be notified within six months. If it reduces the IHT payable, it is good practice to notify HMRC with the revised computation.
5. Complete within two years. The deed must be executed within two years of the date of death.

Common Planning Scenarios

Grandchildren trust: An adult child redirects their inheritance into a trust for their grandchildren (the deceased's great-grandchildren). The trust avoids both the inheritance being taxed in the adult child's estate and the need for the grandchildren to wait for the adult child's death.

Charity top-up: An estate of £1,000,000 has a tax bill of £270,000 (40% on £675,000 above the nil rate band). If one of the beneficiaries redirects £10,000 to charity (bringing charitable giving above 10% of net estate), the IHT rate drops to 36%, saving £6,750 — more than the cost of the charitable gift.

Spouse renunciation: On an intestacy, a surviving spouse is entitled to the first £322,000 outright plus half the rest. The spouse may renounce part of this entitlement via a DoV in favour of the children, using the deceased's nil rate band and saving IHT at the second death.

Asset type considerations: Shares or business assets attracting Business Property Relief or Agricultural Property Relief should remain in the estate at first death to claim the relief — varying these away to a non-qualifying beneficiary could lose the relief. Note that from 6 April 2026, 100% BPR/APR is capped at £2.5 million per estate (transferable between spouses), with relief above that threshold restricted to 50%; AIM and other unlisted shares qualify for 50% relief only and fall outside the £2.5 million allowance. Careful analysis is required before varying reliefs-eligible assets.

What a Deed of Variation Cannot Do

A DoV cannot retrospectively:

• Vary a gift made during the deceased's lifetime
• Change the terms of a trust established by the deceased (only the personal estate passing under the will or intestacy)
• Work where consideration has been paid — the variation must be gratuitous; a beneficiary cannot sell their entitlement and call it a variation
• Benefit a beneficiary who gave up their entitlement in return for a payment (the DoV is set aside)

How Global Investments Can Help

Global Investments works with families and their solicitors to identify post-death planning opportunities, including Deeds of Variation. We can quantify the IHT and CGT implications of proposed variations, model alternative scenarios (charity top-up, generational skip, trust structures), and co-ordinate with legal advisers to ensure the variation achieves its intended tax effect.

This article reflects the law as at mid-2026. IHT thresholds, rates, and the relief position of specific assets are subject to change. A Deed of Variation must be drafted by a solicitor; this article is for information purposes only and does not constitute legal or tax advice for any specific situation.