Sometimes an inheritance does not land where the family feels it belongs, and that can be uncomfortable to raise. A deed of variation lets a beneficiary redirect some or all of what they inherit, under a will or the intestacy rules. If it is made in writing within two years of the death and includes the right statement, it is treated for Inheritance Tax and Capital Gains Tax as if the person who died had left it that way.
What is a deed of variation?
A deed of variation, also called an instrument of variation, is a written document in which someone who has inherited gives up part or all of their entitlement and says where it should go instead. It can change the effect of a will, the result of the intestacy rules, or both. The legal basis is section 142 of the Inheritance Tax Act 1984 for Inheritance Tax, with a matching rule for Capital Gains Tax in section 62(6) of the Taxation of Chargeable Gains Act 1992.
Without these rules, giving away an inheritance would simply be a gift from you. That could mean the gift counts towards your own estate if you die within seven years, and Capital Gains Tax could apply if the asset has risen in value since the death. With a valid variation, the redirected property is treated, for those two taxes only, as if it had passed straight from the person who died.
The technical name in the legislation is an "instrument in writing". HMRC's manual notes that it does not have to be a formal deed for Inheritance Tax purposes, and even a letter can work if it meets the conditions, according to IHTM35022. HMRC's Capital Gains Manual adds that in England, Wales and Northern Ireland a deed is often needed to give the change its legal effect, because nothing is paid in return, which is why most people use one (CG31600).
Why do families use a deed of variation?
The reasons are usually practical and personal rather than purely about tax. Common examples include:
A parent who is already secure passing their inheritance straight to their children or grandchildren, so it does not add to their own estate.
Making provision for an unmarried partner who received nothing under the intestacy rules.
Correcting a will that was out of date, for example one that left out a grandchild born after it was written.
Redirecting part of the estate to a spouse, civil partner or charity, which can reduce Inheritance Tax. Gifts to a spouse or charity are normally exempt, and if 10% or more of the net estate goes to charity, a reduced 36% rate can apply to some assets instead of 40%, according to GOV.UK's Inheritance Tax guide.
A variation can be made even after the estate has been fully administered and the property handed over, under section 142(6). It can also redirect the inheritance of a beneficiary who has since died: HMRC accepts that their executor can make the variation within two years of the first death, ideally with the agreement of that person's own beneficiaries (IHTM35042).
What makes a deed of variation valid for tax?
HMRC's published guidelines and the Capital Gains Manual set out the conditions, all of which must be met (IHTM35021, CG31650):
In writing: the variation must be an instrument in writing.
Within two years of the death: the two years run from the date of death, not from the grant of probate.
Made by the person giving something up: everyone who loses out under the change must be a party to it.
Nothing in return: there must be no payment or other benefit given for the variation, other than another variation of the same estate, under section 142(3).
Clear about what changes: it must identify the gifts being varied and where they go instead.
A statement of intent: for variations made on or after 1 August 2002, the document itself must state that the parties intend section 142(1) of the Inheritance Tax Act 1984 and, if wanted, section 62(6) of the Taxation of Chargeable Gains Act 1992 to apply.
The statement of intent is where home-made variations most often go wrong. HMRC treats a variation without it as outside section 142 altogether, and the example wording it gives is: "The parties to this variation intend that the provisions of section 142(1) Inheritance Tax Act 1984 and section 62(6) Taxation of Chargeable Gains Act 1992 shall apply" (IHTM35028). You can include one, both or neither, depending on what you want to achieve.
Who needs to sign a deed of variation?
The beneficiary or beneficiaries who are giving up their entitlement must sign. If the variation means more Inheritance Tax is payable, the personal representatives (the executors or administrators) must also join in the statement of intent, and they can only refuse if they do not hold enough assets to pay the extra tax, under section 142(2A).
Children under 18 cannot sign a variation that takes something away from them, and a parent's signature on their behalf is not enough. HMRC's manual says a variation that adversely affects a minor or unborn beneficiary can only be fully valid with the approval of the court (IHTM35045). A variation that only adds to a child's share does not have this problem.
Do you need to tell HMRC about a deed of variation?
Only in some cases. If the variation results in additional Inheritance Tax, it must be sent to HMRC within six months of being signed, together with a calculation of the extra tax (IHTM35013). If no extra tax arises, there is no requirement to send it, but keep the signed original safe with the estate records and give the executors a copy.
HMRC publishes a checklist, the instrument of variation checklist (IOV2), to help you work out whether a variation meets the requirements. Completing it is optional, and HMRC's own staff are told not to reject an otherwise valid variation because the form is missing (IHTM35029). If you redirect property to a charity or registered club, the charity must be told about the variation for the tax treatment to apply, under section 142(3A).
What can and cannot be varied?
Most property that passed under the will or the intestacy rules can be varied, including a share of a jointly owned home held as tenants in common. HMRC's guidance also discusses variations involving property that passed by survivorship to a joint owner, but warns that legacies paid out of survivorship property may not get the protection of section 142 unless the variation deals with it properly (IHTM35092).
There are important limits. Property the person was only treated as owning because of a gift with reservation of benefit, and trust property in which they had a life interest, cannot be varied under section 142, according to section 142(5). You also only get one go at each item: HMRC's view, upheld in Russell v IRC (1988), is that a second variation of property already redirected does not qualify (IHTM35082). That makes it worth getting the wording right first time.
Does a deed of variation affect income tax?
The read-back only applies for the taxes the legislation names. HMRC's Capital Gains Manual notes that a variation does not change the will itself and has no retrospective effect for third parties except where section 142 or section 62 provide for it (CG31600). For income tax, you are generally treated as the person who made the gift.
This matters most when a parent redirects an inheritance to their own child under 18. Under the settlements rules, income arising from money a parent provides for their own unmarried minor child can be taxed as the parent's income (TSEM4300). Because of all this, a solicitor or regulated tax adviser is a good idea for anything beyond a simple, tax-neutral redirection between adults.
Prepare a brief before asking for a variation
Before paying for drafting, gather the facts the adviser will need:
Date of death and the date two years later.
The will, or the relevant intestacy position, and the original gift or share.
What you want to redirect, to whom, and why.
Everyone whose entitlement would be reduced, including any children or people unable to consent for themselves.
Earlier variations, distributions already made, property or trust involvement, and known tax calculations.
Which tax treatment you are seeking and who will check the final wording.
This is a briefing list, not a deed to sign. GOV.UK sets out the variation route and two-year limit. Do not wait until the last day to identify an affected beneficiary or an unresolved consent issue.
If the starting position is unclear, first read who inherits without a will and the Inheritance Tax overview. A variation changes an entitlement; it is not a substitute for identifying the original entitlement correctly.
Is agreement in a family email enough for the tax treatment?
Do not assume so. GOV.UK says a formal deed is not always necessary, but a written variation must meet the relevant conditions. An email saying everyone agrees does not by itself demonstrate that those conditions or the required tax statements are satisfied. Have the proposed wording and affected interests checked before relying on it.
Frequently asked questions: Deed of variation
How long do you have to make a deed of variation?
Two years from the date of death. If the variation leads to extra Inheritance Tax, it must also be sent to HMRC within six months of being signed.
Can a deed of variation be used when there is no will?
Yes. Section 142 covers dispositions under a will, under the law of intestacy or otherwise, so beneficiaries under the intestacy rules can redirect what they inherit.
Does a deed of variation need to be witnessed?
For the tax rules, it only needs to be in writing. Most are executed as deeds, because HMRC notes a deed is often needed to give the change legal effect. In England and Wales a deed must be signed in the presence of a witness who attests the signature, under section 1(3) of the Law of Property (Miscellaneous Provisions) Act 1989.
Can you use a deed of variation to avoid Inheritance Tax?
It can lawfully reduce Inheritance Tax, for example by redirecting assets to a spouse or charity, or stop an inheritance adding to your own estate. It must be a genuine change with nothing received in return.
How Solace Care can help
Availability: These guides are freely accessible. The Solace platform currently supports Sweden, Finland, Norway, Denmark and the Netherlands. UK-specific features and legal document templates are not yet confirmed. Before signing up, contact support@solace.care to check access and which features are suitable for you.
This briefing checklist is available without signup. To explore other practical support, ask support@solace.care to confirm access and suitable features first. Once confirmed, you can create a Solace Care account. An account does not draft, execute or validate a deed of variation.
