Deed of Variation and Capital Gains Tax: The s62(6) Election
Redirecting an inheritance via a deed of variation can inadvertently trigger CGT on the varying beneficiary. The s62(6) TCGA 1992 election avoids this — but it must be made separately from the IHT election and signed by both parties.
Two Separate Elections — Both May Be Needed
IHT election — s142 IHTA 1984
- Effect: Variation treated as made by deceased — IHT calculated as if the redirected gift was always the deceased's
- Who signs: The person making the variation (and personal representatives if IHT is underpaid)
- Deadline: 2 years of death
CGT election — s62(6) TCGA 1992
- Effect: Variation treated as made by deceased — recipient acquires at probate value, varying beneficiary has no disposal
- Who signs: Both the person making the variation AND the new recipient
- Deadline: 2 years of death
Frequently Asked Questions
Can a deed of variation trigger capital gains tax?
Yes — without the correct election, a deed of variation can trigger a CGT liability for the beneficiary who is varying their entitlement. When a beneficiary redirects their inheritance to someone else, HMRC can treat this as a disposal of an asset by the varying beneficiary at the current market value. If the assets have increased in value between the date of death (when the beneficiary inherited) and the date of the variation, the beneficiary has a 'gain' on that increase. Without the s62(6) Taxation of Capital Gains Act 1992 election, this gain is a chargeable disposal for CGT purposes — the varying beneficiary may owe CGT on the increase in value even though they never received the asset.
What is the s62(6) TCGA 1992 election and how does it help?
Section 62(6) of the Taxation of Capital Gains Act 1992 allows the parties to a deed of variation to elect that the variation is treated as if it had been made by the deceased on the date of death — for CGT purposes. The effect is: (1) The varying beneficiary is treated as never having acquired the asset — no disposal, no CGT; (2) The person who receives the redirected asset is treated as having acquired it at the probate value (the value at the date of death), not at the value on the date of the variation. This is the same 'relate-back' principle that applies to s142 IHTA 1984 for IHT — but the two elections are legally separate and both must be made if both IHT and CGT relate-back treatment is wanted. Making the IHT election does not automatically create the CGT election.
How is the s62(6) election made?
The s62(6) election must be: (1) made in writing; (2) included in the deed of variation itself (or as a separate written notice submitted to HMRC within the same 2-year window); (3) signed by all parties to the variation — including, importantly, the person who receives the redirected asset (the new beneficiary), since they are accepting an asset at probate value rather than current market value. The time limit is within 2 years of the date of death. Unlike the IHT election, the CGT election must be signed by the recipient as well as the person making the variation — HMRC form is not prescribed but the election must clearly identify the asset, the variation, and confirm the s62(6) election.
When is the s62(6) election NOT worth making?
The election gives the new recipient a lower CGT base cost (probate value at death rather than current market value). If the new recipient plans to sell the asset quickly after receiving it, this could mean a higher CGT gain on sale compared to the non-election position (where they would acquire at the higher variation date value). However, the election avoids CGT for the varying beneficiary — so the decision involves weighing the varying beneficiary's potential gain (avoided by the election) against the new recipient's higher future gain (created by the election). It may also not matter if the new recipient is a charity (exempt from CGT), a spouse/civil partner (spousal transfer exemption), or plans to hold the asset long-term. A tax adviser should be consulted on the specific numbers.
Does the CGT uplift on death apply before a deed of variation?
Yes — s62(1) TCGA 1992 provides that on death, all assets owned by the deceased are treated as acquired by the personal representatives at their market value at the date of death (the probate value). This means any capital gain that accrued during the deceased's lifetime is wiped out — beneficiaries start with a fresh CGT base cost at probate value. A deed of variation does not disturb this uplift. Whether or not the s62(6) election is made, the probate value remains the reference point. The practical difference is only when assets have increased in value between the date of death and the date of the variation — which in volatile markets or a long administration period can be significant.
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