Deed of Variation Inheritance Tax UK: How to Redirect an Inheritance and Save IHT (2026)
A deed of variation (s142 IHTA 1984) allows a beneficiary to redirect inherited assets to another person or charity within 2 years of the date of death. The redirected gift is treated as if the deceased made it directly — no PET clock for the beneficiary, no CGT disposal, and potential IHT savings of tens of thousands. The 2-year deadline is absolute — act now if a death occurred in the last 2 years.
| IHT Use of Deed of Variation | How It Works | Typical Saving |
|---|---|---|
| Redirect home to children — claim RNRB | Varies the will/intestacy to pass the residence to direct descendants, claiming the s8D IHTA RNRB on the first death | Up to £70,000 per death |
| Redirect 10%+ to charity | Charitable amount is IHT-exempt (s23); 36% rate applies to remainder (s36 / Finance Act 2012) | 4% rate reduction + charity exempt |
| Skip a generation (to grandchildren) | Assets pass directly to grandchildren — does not inflate child's estate or start the child's PET clock | Depends on grandchildren's IHT position |
| After intestacy — restructure for RNRB | Intestacy may not claim the RNRB; variation directs the home to children within the 2-year window | Up to £70,000 per death |
| Redirect to a beneficiary with lower IHT exposure | If the original beneficiary's estate is above the NRB and the new beneficiary's estate is not, the assets are better placed with the new beneficiary | 40% of redirected amount (if estate above NRB) |
| Pass AIM/BPR-qualifying shares to a new holder | Restart the 2-year BPR clock for the new beneficiary from the variation date (not inherited from the deceased) | Up to 100% of share value (after 2 years) |
| Use the NRB against a specific asset | Direct a particular chargeable asset to a beneficiary outside the taxable band, using the NRB that would otherwise be absorbed by spousal exemption | Up to £130,000 (NRB × 40%) |
Illustrative figures. Actual saving depends on estate value and specific circumstances. Professional advice recommended.
Deed of Variation: Complete Guide
What is a deed of variation and how does it work?
A deed of variation (also called a deed of family arrangement) is a legal document by which a beneficiary who has received (or is entitled to receive) assets from a deceased person's estate redirects all or part of those assets to a different person or charity. The key legal provision is s142 IHTA 1984: where the variation is made within 2 years of the date of death, and the deed contains the required election, the variation is treated for IHT purposes as if the deceased had made the varied gift directly in their will. This has two critical consequences: (1) The redirected assets do not enter the beneficiary's own estate — no IHT exposure if the beneficiary later dies; and (2) No 7-year PET clock starts for the varying beneficiary — the IHT treatment is as if the deceased made the gift, not the beneficiary. For CGT purposes, s62(6) TCGA 1992 similarly treats the variation as the deceased's disposal (assets pass at probate value, not at market value on the date of variation) — avoiding a CGT disposal by the varying beneficiary on any gain since the date of death.
The 2-year time limit — absolute and cannot be extended
The deed of variation must be executed within 2 years of the date of death. This is an absolute deadline — it cannot be extended by HMRC or a court, even if the estate administration is ongoing or there is a dispute. The 2-year period runs from the date of death (not from the grant of probate, not from when the beneficiary receives the assets). For deaths in June 2024: the deadline is June 2026 — use the remaining window now if a variation is needed. For deaths in June 2025: the deadline is June 2027. The deed can be executed before probate is granted. However, the estate should be sufficiently understood before the variation is made — once signed, a deed of variation can only be varied again with the agreement of all parties and HMRC consent (in some circumstances). If the estate will not be distributed by the 2-year deadline, it is still possible to execute the deed in respect of the inheritance — the assets can be redirected before actual distribution.
What can be varied — and who needs to agree?
Only the beneficiary who is giving up (varying) their interest needs to agree to and sign the deed. Other beneficiaries who are NOT giving up anything do not need to consent. In practice: (1) The personal representatives (executors/administrators) of the estate may be asked to acknowledge the deed (especially if it affects the administration), but do not need to join in the deed unless specifically required; (2) If the variation redirects assets to a minor (child under 18) or a person lacking mental capacity, court approval may be required; (3) If the variation redirects assets to or from a charitable beneficiary, charities should be notified and may need to agree in writing; (4) What can be varied: any interest received under a will, intestacy, or other testamentary document (including jointly tenanted property — though not all jointly tenanted property can be varied without specific arrangements). A trust deed, a pension nomination, or a life insurance payout (which passes outside the estate) generally cannot be varied under s142 IHTA 1984.
IHT uses of a deed of variation: RNRB, NRB, charity, and estate planning
The most common IHT uses of a deed of variation are: (1) Claiming the RNRB missed in the will: if the deceased left the home to a spouse and the RNRB was not claimed (because nothing passed to direct descendants), a variation can redirect the home (or the value of the home) to children — claiming the RNRB on the first death. Saving: up to £70,000 per deceased person; (2) Directing assets to charity: redirecting part of the estate to charity achieves two things — the charitable amount is IHT-exempt (s23 IHTA 1984), and if 10%+ of the net estate passes to charity, the remaining chargeable estate is taxed at 36% instead of 40% (s36 IHTA 1984 / Finance Act 2012); (3) Passing assets down a generation: grandchildren or great-grandchildren receive the asset directly (potentially inside the IHT threshold) rather than it passing to a child's estate first; (4) Equalising estates between beneficiaries for future IHT purposes; (5) Applying unused NRB: if the estate was below the NRB and some NRB was wasted, a variation cannot create relief retrospectively — but it can restructure who gets what to make the most of going-forward positions.
CGT and income tax implications of a deed of variation
The CGT treatment under s62(6) TCGA 1992 mirrors the IHT treatment: the variation is treated as the deceased's disposal (the asset is treated as passing at probate value to the new beneficiary, as if that is what the deceased had directed in their will). Critically: the varying beneficiary does NOT make a CGT disposal when executing the deed — no CGT charge arises on any increase in value between the date of death and the date of the variation. This is particularly valuable where the asset has increased in value during the estate administration (e.g., shares or property that appreciated since the date of death). The new beneficiary acquires the asset at the probate value (the market value at the date of death), which becomes their CGT base cost. Income tax: income generated by the estate during administration (interest, rents, dividends) that accrues to the original beneficiary before the variation cannot be retroactively reassigned — only the capital and post-variation income is redirected. The s62(6) TCGA election must be stated in the deed alongside the s142 IHTA election.
Deed of variation after intestacy: planning when there was no will
A deed of variation is particularly powerful where the deceased died intestate (without a will), because the intestacy rules (Administration of Estates Act 1925) may not distribute the estate in the most IHT-efficient way. On intestacy: (1) A surviving spouse inherits the first £322,000 (2024 statutory legacy) plus half the remainder — the other half goes to children; or (2) If no spouse: all goes to children equally; or (3) If no spouse or children: passes further up and out the family tree. A variation can: redirect the spouse's intestacy share to children (claiming the RNRB); redirect children's share to grandchildren (skipping a generation); redirect part to charity for the 36% reduced rate. Any of these changes requires executing a deed of variation within 2 years of the date of death — the intestacy rules are not fixed; they are the default position until a variation changes them.
Frequently Asked Questions
What is a deed of variation for inheritance tax?
A deed of variation (s142 IHTA 1984) allows a beneficiary who has received (or is entitled to receive) assets from an estate to redirect all or part of those assets to another person or charity within 2 years of the date of death. For IHT purposes, the redirected gift is treated as if the deceased had made it directly in their will — not as a gift by the beneficiary. This means the redirected assets do not enter the beneficiary's estate and do not start a 7-year PET clock for them.
How long do you have to do a deed of variation?
Exactly 2 years from the date of death — not from the date of probate, not from when assets were received. The 2-year deadline is absolute; it cannot be extended. The deed must be executed (signed) before the deadline expires. It can be executed before or after probate is granted.
Can a deed of variation save inheritance tax?
Yes — in several ways: (1) Directing assets to charity: IHT-exempt under s23 IHTA 1984; if 10%+ of the net estate is charitable, the remaining estate is taxed at 36% instead of 40%; (2) Claiming missed RNRB: redirecting the home to children can save up to £70,000 per death; (3) Passing assets down a generation: grandchildren receive directly — the assets do not inflate a child's estate; (4) Using the NRB efficiently. The deed does not save IHT if the estate is below the NRB or if the variation is for assets passing entirely between spouses (spousal exemption already applies).
Does a deed of variation trigger CGT?
No — under s62(6) TCGA 1992, a deed of variation (with the CGT election included in the deed) is treated as the deceased's disposal at probate value. The varying beneficiary does NOT make a CGT disposal on any gain in value between date of death and date of variation. The new beneficiary acquires the asset at probate value as their CGT base cost. Both the s142 IHTA election and the s62(6) TCGA election must be stated in the deed.
Can you do a deed of variation without everyone agreeing?
Only the beneficiary giving up the interest needs to agree and sign the deed — other beneficiaries who are not giving up anything do not need to consent. Executors/administrators may be asked to acknowledge the variation. If the variation redirects assets to a minor or a person lacking capacity, court approval may be required. If charities are involved as beneficiaries, they should be consulted.
The Best Deed of Variation Starts With a Good Will
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