Answers · UK 2025/26
What is a deed of variation and how does it save inheritance tax?
A deed of variation lets beneficiaries redirect their inheritance within 2 years of death, and HMRC treats it as if the deceased had made the change. You can redirect to charity (saving 40% IHT), skip a generation to grandchildren, or fund a trust. All affected beneficiaries must agree and sign, and the deed must be correctly drafted.
Full answer
A deed of variation (DoV) -- also called a deed of family arrangement -- is a legal document signed by beneficiaries that redirects some or all of their inheritance to different recipients. Crucially, for IHT and CGT purposes, HMRC treats the variation as if the deceased had made it, not the beneficiaries. This backdating effect is the key tax planning advantage. Who can vary: any beneficiary who has received (or is due to receive) an asset from the estate. You can only vary your own entitlement, not someone else's. All beneficiaries whose entitlement is reduced must agree and sign. Key IHT uses: 1. Redirect to charity: gifts to UK registered charities are exempt from IHT. Redirecting a legacy to charity reduces the taxable estate and may reduce the overall IHT rate if the charitable gift is 10% or more of the net estate (reducing the rate from 40% to 36%). 2. Skip a generation: a beneficiary (e.g. the deceased's adult child) redirects to their own children (grandchildren of the deceased). This avoids the inheritance being caught in the beneficiary's estate when they eventually die. 3. Fund a trust: redirect assets into a trust for flexibility, asset protection, or future IHT planning. 4. Use unused nil-rate band: restructure legacies so the deceased's unused nil-rate band (NRB) is fully used, rather than transferred to the surviving spouse and potentially wasted. CGT: for CGT purposes, a variation is also treated as if made by the deceased. No CGT arises on the variation itself. However, a statement must be included in the deed if you want the CGT treatment to apply. Time limit: the deed must be executed within 2 years of the date of death. There is no extension to this deadline. No consideration: the variation must be made for no payment or consideration -- it must be a genuine gift. If a beneficiary is compensated for redirecting their share, the IHT and CGT treatment does not apply. Getting a solicitor to draft the deed is strongly recommended. A poorly drafted variation can fail to achieve the intended tax treatment.
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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.