Answers · UK 2025/26
How can a deed of variation change who inherits and reduce Inheritance Tax?
A deed of variation lets beneficiaries of a will (or intestacy) agree, within two years of the death, to redirect some or all of their inheritance to someone else -- for tax purposes, it's treated as if the deceased had left it that way in their will originally, rather than as a gift from the beneficiary. This can reduce Inheritance Tax (for example, by redirecting assets to a spouse or charity) or achieve fairer or more tax-efficient distribution among the family.
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A deed of variation (sometimes called a deed of family arrangement) is a flexible and widely used tool that lets beneficiaries change how an estate is distributed after someone has died, often used for both family reasons and Inheritance Tax planning. **What a deed of variation does** After someone dies, the beneficiaries named in their will (or, where there's no will, those entitled under the intestacy rules) can agree to redirect some or all of their inheritance to a different person or purpose -- for example, an adult child who doesn't need their inheritance might redirect it to their own children, to a sibling with greater need, or to a charity. Crucially, this must be done with the genuine agreement of whoever would otherwise have received the redirected assets; it cannot be imposed unilaterally by someone other than the beneficiary giving up their entitlement. **The two-year time limit** A deed of variation must be made within two years of the date of death for it to have retrospective tax effect -- variations made after this window can still change who receives the assets as a matter of ordinary gifting, but lose the special tax treatment that makes deeds of variation so useful, and would instead be treated as a normal lifetime gift from the original beneficiary (potentially triggering the beneficiary's own Inheritance Tax and Capital Gains Tax consequences, including the seven-year PET rule, rather than being read back into the original estate). **"Read back" into the will for tax purposes** The key tax advantage of a deed of variation made within the two-year window is that, provided the deed includes the correct formal statement electing for this tax treatment, HMRC treats the redirected assets as though the DECEASED had left them that way in their original will (or under intestacy), rather than as a gift made by the original beneficiary. This means the redirected assets are assessed for Inheritance Tax (and Capital Gains Tax, if a separate CGT election is also made) as part of the deceased's estate, not as a new gift from the beneficiary who is redirecting them. **Common Inheritance Tax uses** A common IHT-saving use is redirecting assets to a surviving spouse or civil partner (since transfers between spouses are exempt from IHT) where the original will didn't leave enough to the spouse to make full use of exemptions, or redirecting assets to charity (since gifts to charity are exempt, and leaving 10% or more of a net estate to charity can also reduce the IHT rate on the rest of the estate from 40% to 36%) where the original will didn't include a charitable gift. **Skipping a generation for future IHT efficiency** A deed of variation is also commonly used to redirect an inheritance from an adult child (who may already have a substantial estate of their own, or simply doesn't need the money) directly to their own children (the deceased's grandchildren) instead -- this avoids the assets passing through, and potentially being taxed again in, the adult child's own estate in future, effectively skipping a generation of potential Inheritance Tax exposure. **Not just for tax reasons** Deeds of variation are also used for entirely non-tax reasons -- for example, correcting an outdated or unfair will, providing for someone the deceased forgot to include, resolving a family dispute over the will's terms, or simply reflecting what the family collectively agrees is a fairer distribution than the will (or intestacy rules) technically provide. **All affected beneficiaries must agree** Every beneficiary whose entitlement is being reduced by the variation must consent and sign the deed -- if a beneficiary is a minor or lacks mental capacity, court approval is generally required before their share can be varied, since they cannot personally consent to giving up part of their inheritance. **Practical tip** If you're considering a deed of variation, act well within the two-year window (don't leave it until the deadline is close, since finalising the deed's wording and getting all beneficiaries' agreement can take time), and use a solicitor experienced in estate planning to ensure the deed includes the correct formal elections needed for the tax "read back" treatment to apply.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.