Deed of Variation — Redirecting Inherited Property to Reduce Inheritance Tax

What is a Deed of Variation?

A deed of variation (also known as a “variation of a will” or “family arrangement deed”) is a legal document that allows the beneficiaries of an estate to redirect some or all of their inheritance to someone else. HMRC treats the variation as if the original will had been written differently from the outset.

This is powerful for inheritance tax purposes: gifts made via a deed of variation are treated as if the deceased had made them directly, not as gifts from the beneficiary.

The Two-Year Window

A deed of variation must be executed within two years of the date of death. This deadline is absolute — there is no extension. If you are a beneficiary of an estate that includes property and you want to explore a variation, take legal advice promptly.

Why Use a Deed of Variation for Property?

**Reducing IHT on the estate**

If property is redirected to an exempt beneficiary (e.g. a charity, or a spouse/civil partner under the spousal exemption), IHT may be reduced or eliminated on that portion of the estate.

**Skipping a generation**

Rather than inheriting property yourself and paying IHT again when you die, you can redirect it to your children. This removes the asset from your own estate, potentially saving 40% IHT in the future.

**Equalising between beneficiaries**

Where a will has left unequal shares, the family may agree a variation to achieve a fairer distribution.

**Using the nil-rate band**

If the deceased did not use their full nil-rate band (£325,000 per person, or £500,000 with the residence nil-rate band), a variation can be structured to make use of any unused allowance.

Requirements for a Valid Deed of Variation

To be effective for IHT and CGT purposes, the deed must:

1. Be in writing and signed by all beneficiaries who are varying their entitlement

2. Be executed within two years of death

3. Contain a statement that the parties intend it to be treated as if the deceased had made the variation (required by IHTA 1984 s142 and TCGA 1992 s62)

4. Not be made in return for any consideration (payment) by another person

All adult beneficiaries who are giving up an entitlement must sign. Minor beneficiaries require court approval, which makes variations involving children significantly more complex.

Capital Gains Tax

A deed of variation can also reset the CGT base cost of inherited assets. If property has risen in value between the date of death and the date of variation, the redirection is treated as occurring at the date of death (at probate value) rather than the later date, avoiding any CGT on the intervening gain.

What You Cannot Do

A deed of variation cannot:

• Be used to benefit the person making the variation (you cannot redirect assets to yourself in a more tax-efficient form)
• Override the rights of creditors if the estate is insolvent
• Be made after the two-year window has closed

Getting Legal Advice

Deeds of variation involve complex interactions between inheritance tax, capital gains tax, and family law. Always instruct a specialist probate solicitor. The cost is typically £500–£1,500 for a straightforward variation, which is modest relative to the potential tax saving on a property asset.

Property Passport UK can help identify the registered title and valuation data for inherited properties as part of the estate assessment process.