A deed of variation is a post-death estate planning tool that lets beneficiaries redirect inherited assets -- whether under a will or the intestacy rules -- within two years of the death. Used correctly, it can reduce Inheritance Tax, pass wealth to the next generation, or make charitable gifts that the deceased never included in their will. This guide explains how the reading-back tax treatment works, who must sign, the interaction with the nil-rate bands, and when a deed of variation is and is not the right approach.
A deed of variation (sometimes called a deed of family arrangement) is a legal document by which one or more beneficiaries of an estate agree to alter how an inheritance is distributed. The key feature that makes it a powerful tax planning tool is that HMRC treats the variation as though the deceased had made the changed disposition in their original will or as part of their intestate estate -- provided the deed meets the statutory requirements.
This reading back to the date of death applies for both Inheritance Tax (IHT) purposes under section 142, Inheritance Tax Act 1984, and Capital Gains Tax (CGT) purposes under section 62(6), Taxation of Chargeable Gains Act 1992. The beneficiary who gives up their entitlement is not treated as making a gift -- so the seven-year potentially exempt transfer (PET) clock does not start and no IHT arises on the redirection itself.
Deeds of variation are used for several purposes: redirecting assets to reduce the IHT payable on the estate; passing wealth down a generation to grandchildren (known as generation skipping); making charitable gifts to reduce the taxable estate or qualify for the 36% reduced IHT rate; and equalising inheritances among family members where a will was outdated or unfair.
The variation must be in writing (a formal legal deed, typically drafted by a solicitor), signed by all beneficiaries giving up their entitlement, executed within two years of the date of death, and must include a statement that the parties intend it to have IHT and/or CGT effect. If the estate has already paid IHT, HMRC can reopen the calculation and issue a repayment where the variation reduces the liability.
The two-year deadline is absolute. A variation executed on day 731 after the death -- one day after the second anniversary -- is too late for IHT and CGT reading-back treatment, even if all parties are willing and there is a compelling reason for the delay.
The deadline runs from the date of death, not from the date of the grant of probate (or letters of administration for intestacies). Estate administration can take many months, and some estates are not fully distributed before the two-year window closes. A variation can be made before the estate administration is complete -- beneficiaries do not need to have received their inheritance yet in order to vary it.
In practice, solicitors dealing with complex estates should flag the two-year anniversary early and advise beneficiaries well in advance. Where a family is divided or where some beneficiaries are difficult to contact, the clock still runs regardless. If there is any prospect that a variation might be desirable, it is better to execute it before the deadline than to miss the window entirely.
Where a variation is executed before the full estate accounts are agreed, it can be drafted to cover a specified asset or a specified percentage of the estate rather than needing to specify exact figures. Solicitors experienced in this area can draft flexible variations that survive subsequent changes to asset values before final estate accounts are drawn up.
Every beneficiary whose entitlement is reduced or extinguished by the variation must sign the deed. This is because a variation is a binding legal agreement by the beneficiary to give up rights they already hold under the will or under intestacy.
Where a beneficiary is a minor (under 18), they cannot enter into a binding legal agreement in their own right. Their parents or guardians cannot sign on their behalf -- parental consent is not sufficient. To vary a minor\'s entitlement, an application must be made to the court, typically under the Variation of Trusts Act 1958 if the minor\'s entitlement is held on trust. The court must be satisfied that the variation is for the benefit of the minor. Obtaining court approval takes time and involves legal costs, which must be weighed against the tax saving.
Beneficiaries who lack mental capacity also require Court of Protection approval before their entitlement can be varied. The Court of Protection acts in the best interests of the incapacitated person, and a variation that reduces their inheritance will need to demonstrate a clear benefit.
The personal representatives (executors or administrators) do not normally need to sign the deed of variation unless the variation increases the IHT liability of the estate (in which case they must consent to being responsible for paying the additional tax), or the variation affects assets that have not yet been transferred to the beneficiaries and the executors need to redirect those assets directly.
The statutory basis for IHT reading back is section 142, Inheritance Tax Act 1984. Where the deed contains the required statement of intention, HMRC treats the variation as if the deceased had made the changed disposition in their will. The practical consequences include the following:
The IHT is calculated on the estate as varied -- which may be lower than the original IHT calculation. If IHT has already been paid, HMRC will repay the overpaid amount once a revised IHT400 is submitted with the deed of variation. The revised calculation uses the asset values at the date of death, not the date of the variation.
For CGT purposes, the reading-back treatment under section 62(6), Taxation of Chargeable Gains Act 1992 means the new recipient acquires the assets at the probate value (market value at the date of death) rather than at any increased value at the date of the variation. The original beneficiary is not treated as having disposed of the assets.
Assets that pass on death are rebased to market value for CGT -- meaning any gain accrued before death is wiped out. This uplift on death is extremely valuable for assets that have appreciated significantly during the deceased\'s lifetime. The CGT reading back in a deed of variation preserves this uplift for the new recipient: they acquire at the date-of-death value, not at any pre-death acquisition cost.
If the deed does not include a CGT statement -- either because the parties forgot or because CGT was not considered -- and assets have risen in value between the date of death and the date of the variation, the redirection may be treated as a disposal by the original beneficiary at current market value, potentially triggering CGT at 18% or 24% (residential property) or 10% or 20% (other assets) in 2026/27, subject to the GBP 3,000 annual exempt amount.
It is always advisable to include both the IHT and CGT statements in a deed of variation, even if CGT is not currently a concern. The cost of including both statements in the legal drafting is negligible, and the protection can be significant if assets later prove to have risen in value between death and the date of the variation.
One of the most tax-efficient uses of a deed of variation is redirecting part of an inheritance to charity. If the original will did not include charitable gifts -- or included insufficient charitable gifts -- beneficiaries can use a deed of variation to redirect part of the estate to charity within the two-year window.
The charitable gift is exempt from IHT. More importantly, if charitable gifts (after the variation) total at least 10% of the baseline net estate -- broadly, the estate subject to IHT after the nil-rate band -- the reduced rate of 36% applies to the entire remaining taxable estate rather than 40%.
In a GBP 800,000 estate with a single NRB of GBP 325,000 (no RNRB, for simplicity), the taxable baseline is GBP 475,000. To qualify for the 36% rate, charitable gifts must total at least 10% of GBP 475,000 = GBP 47,500. The IHT on the remaining GBP 427,500 at 36% is GBP 153,900, compared with GBP 190,000 at 40% on GBP 475,000 without the charitable gift. The charity receives GBP 47,500 and the family saves GBP 36,100 in IHT -- meaning the net cost of the charitable gift to the family is only GBP 11,400, a very efficient form of charitable giving.
The nil-rate band (NRB) is GBP 325,000 in 2026/27. Any unused NRB from a predeceased spouse or civil partner can be transferred to the surviving spouse\'s estate, potentially giving a combined NRB of GBP 650,000. The residence nil-rate band (RNRB) is GBP 175,000 per individual (GBP 350,000 for a couple) and applies where a residential property passes to direct descendants.
A deed of variation can affect both bands. If a variation redirects assets that would have qualified for the RNRB (a family home passing to children) away from direct descendants, the RNRB may be lost on that estate. Conversely, if a will left the family home to a sibling or friend, a variation that redirects it to direct descendants can reinstate RNRB eligibility.
Where an estate passed entirely to a surviving spouse (using the spouse exemption), all of the NRB and RNRB were unused on the first death -- they transfer to the survivor\'s estate. A variation could redirect some assets away from the surviving spouse to use the NRB on the first death (for example, GBP 325,000 of assets redirected to children or a discretionary trust), reducing the survivor\'s eventual taxable estate. However, this approach reduces the surviving spouse\'s assets and must be considered carefully against their financial needs.
The RNRB tapers for estates above GBP 2 million. A variation that reduces the estate below GBP 2 million -- for example, by redirecting assets to charity -- can restore RNRB eligibility that would otherwise have been tapered away. This can be a significant tax saving for larger estates and is one of the most compelling uses of a deed of variation in combination with charitable giving.
A deed of variation is a powerful tool but it is not always the right solution. You should not use one if a minor or incapacitated beneficiary would need to give up entitlement unless you are prepared to obtain court approval; the variation would reduce the share of a beneficiary who genuinely needs the assets such as a surviving spouse who needs the full inheritance to live on; assets have fallen in value since death, because the reading-back treatment locks in the higher date-of-death value; the beneficiary\'s reduced share would affect means-tested benefits before the date of the deed; or the estate has outstanding creditors, since a variation cannot be used to defeat creditors\' claims.
A deed of variation is reactive planning -- it corrects or improves an estate\'s IHT position after death. The best estate planning is proactive: a well-drafted will, lifetime gifting, and the use of trusts can reduce or eliminate the need for a post-death variation. But for families dealing with an unplanned or badly planned estate, a deed of variation executed within two years of death remains one of the most powerful and relatively straightforward tools available.
