01

What a deed of variation achieves — the legal mechanism

A deed of variation (also called an instrument of variation or a family arrangement) is a written agreement signed by the beneficiary or beneficiaries who are giving up or redirecting their inheritance entitlement. The variation redirects the relevant assets to a new beneficiary or beneficiaries.

The critical legal effect: for IHT and CGT purposes, the variation is treated under s142 IHTA 1984 and s62(6) TCGA 1992 as if the deceased had made the gift in their original will — not as if the original beneficiary had made a gift to the new beneficiary. This distinction is fundamental. Without the statutory treatment, a beneficiary who receives an inheritance and passes it to their children has made a potentially exempt transfer — starting the seven-year clock and potentially attracting IHT if they die within seven years. With the statutory treatment, the gift is treated as the deceased's — no PET is created by the redirecting beneficiary, and the seven-year clock starts (if relevant) from the deceased's death, not the variation date.

For CGT, the variation is not treated as a disposal by the redirecting beneficiary — no CGT arises on the redirection itself. The new beneficiary acquires the asset at the probate value (not the deceased's original cost) — preserving the CGT uplift on death for the new beneficiary as it would have been for the original beneficiary.

02

The two-year deadline — how it is calculated and why it cannot be extended

The two-year period for executing a deed of variation runs from the date of death of the deceased — not from the date of the grant of probate, not from the date of the deceased's will, and not from the date the beneficiary first became aware of their inheritance. The date of death is fixed and the two-year period is absolute.

For a person who died on 15 April 2025: the deadline for a deed of variation is 14 April 2027 — exactly two years. A variation executed on 15 April 2027 is one day too late and will not attract the statutory tax treatment regardless of the circumstances.

Court of Protection: if a beneficiary lacks mental capacity and cannot consent to the variation, a Court of Protection application is required to authorise the variation on their behalf. Court of Protection proceedings take a minimum of three to four months — for beneficiaries with capacity issues, this must be initiated immediately if a variation is being considered. Waiting until the last six months of the two-year period before applying to the Court of Protection risks running out of time.

Minor beneficiaries: beneficiaries under 18 cannot consent to a variation that reduces their entitlement. If a minor's inheritance is to be redirected, the court's approval is required. This applies even where the parents are willing to redirect on the minor's behalf — parental consent is insufficient. The application to court must be made well within the two-year window to allow for court processing time.

The practical implication: deed of variation planning should begin immediately on bereavement — not when the estate is being wound up in the final months before the deadline. Executors and solicitors should raise the possibility of a deed of variation at the first estate meeting after the death.

03

The IHT cases where a variation saves the most

The deed of variation creates the most IHT value in four specific situations, each of which represents a correctable structural defect in the original will or intestacy.

Case 1 — Claiming a missed RNRB: the RNRB (£175,000 per individual) requires the family home to pass to direct descendants. If a will leaves the entire estate to a surviving spouse (using the spousal exemption), the RNRB may not be claimed on first death — it transfers to the survivor but only if properly structured. If the will leaves the home to the surviving spouse outright and the RNRB was not optimally planned, a deed of variation redirecting the home (or its equivalent value) to children can claim the RNRB on the first death. RNRB saving: £175,000 × 40% = £70,000 of IHT per person.

Case 2 — Skipping a generation: if a parent inherits from a grandparent and is themselves wealthy, the inheritance will be subject to IHT again when the parent dies. A deed of variation redirecting the inheritance directly from the grandparent to grandchildren treats the gift as coming from the grandparent — potentially saving one full generation of IHT at 40%. On a £200,000 inheritance, skipping a generation saves up to £80,000 in future IHT.

Case 3 — Redirecting to charity: a variation that redirects part of an estate to charity reduces the taxable estate. If the redirected charitable amount is at least 10% of the net estate, the remaining estate is taxed at 36% rather than 40% — saving 4% on the full non-charitable estate. A variation redirecting £50,000 to charity from a £500,000 taxable estate (10% of net estate): IHT saving from charity exemption (£50,000) + rate reduction (4% × £450,000 = £18,000) = total saving approximately £68,000.

Case 4 — Rectifying pre-2008 nil rate band trust provisions: wills drafted before 2008 frequently included nil rate band discretionary trust provisions that are no longer necessary (the transferable nil rate band was introduced in 2008). These provisions can result in unnecessary complexity and, in some cases, loss of the RNRB. A deed of variation can redirect assets to remove the trust provision and optimise the TNRB and RNRB claims.

04

The process — instructing a solicitor and what to expect

A deed of variation is a legal document that must be drafted by a qualified solicitor. The following steps describe the typical process.

Step 1 — Identify the opportunity: within the first six months of death, executors and beneficiaries should review the estate with a specialist wills and probate solicitor to identify whether a deed of variation would improve the IHT or CGT position. The review considers the structure of the will, the composition of the estate, the beneficiaries' individual tax positions, and the potential IHT and CGT savings.

Step 2 — All affected beneficiaries must agree: every beneficiary who is giving up or redirecting an entitlement must sign the variation. If any affected beneficiary declines, the variation cannot proceed — one beneficiary cannot be compelled to give up their entitlement. Where beneficiaries are geographically dispersed, electronic signing is generally accepted for deeds of variation following the Law Commission's guidance.

Step 3 — Drafting and execution: the solicitor drafts the deed, including the statutory statement for IHT and CGT purposes. All parties sign in the presence of a witness. The original deed is retained by the solicitor with copies provided to all parties and the executor.

Step 4 — HMRC notification: if the variation results in additional IHT becoming payable (for example, where assets are redirected away from an exempt beneficiary to a non-exempt one), HMRC must be notified within six months of the variation date. If the variation reduces IHT, a supplemental IHT400 may need to be filed to claim the reduction — typically handled by the executor's solicitor.

Cost: a straightforward deed of variation for one property or a simple estate redirection costs approximately £750 to £1,500 in solicitor fees. A complex variation involving multiple assets, several beneficiaries and court approval for a minor costs £3,000 to £6,000.

05

What a deed of variation cannot do

Understanding the limits of a deed of variation is as important as understanding its uses. Attempting to use a variation for purposes it cannot achieve wastes legal costs and creates false expectations.

A deed of variation cannot: retrospectively create a trust that was not provided for in the original will (though it can redirect assets into an existing trust or a new trust established separately); change the will of a person who is still alive (only a person who has died can have their will varied); vary the entitlement of a beneficiary who has already received and spent their inheritance (the assets must still be available for redirection); extend the two-year deadline for any reason (HMRC has confirmed it will not accept late variations regardless of circumstances); or redirect assets into a pension or SIPP (pension contributions require a living donor).

A deed of variation also cannot circumvent genuine arm's length transactions. If a beneficiary sells inherited shares to a third party at market value, they cannot subsequently redirect the cash proceeds via a variation as if the original shares had been redirected — the shares are gone. Only assets that remain in the beneficiary's possession can be redirected.

Finally, a deed of variation cannot be used primarily to avoid income tax — the statutory treatment applies only for IHT and CGT purposes. If a beneficiary redirects income-producing assets to a lower-rate taxpayer to reduce ongoing income tax, this is a settlement for income tax purposes and the income may be attributed back to the redirecting beneficiary under the settlement rules.