Inheritance Planning Guide

Deed of variation: redirecting inherited property

A deed of variation allows you to change how an estate is distributed after someone has died. It can be a powerful tool for inheritance tax planning, especially where property is involved. Here is everything you need to know.

What is a deed of variation?

A deed of variation (sometimes called a deed of family arrangement) is a legal document that allows the beneficiaries of an estate to change how assets are distributed after someone has died. It must be made within two years of the date of death.

The key feature of a deed of variation is that, for inheritance tax and capital gains tax purposes, it is treated as if the deceased had made the new arrangement in their will. This means the variation is looked at from the date of death, not the date of the deed. This makes it an incredibly useful tool for retrospective tax planning.

A deed of variation is not about contesting a will or challenging the deceased's wishes. It is a voluntary arrangement between the beneficiaries to redistribute assets in a way that better suits the family's circumstances. All affected beneficiaries must agree, and no one can be forced to give up their inheritance.

When would you use a deed of variation?

There are several common situations where a deed of variation can be beneficial:

Reducing inheritance tax

If the will leaves everything to adult children who are financially comfortable, they could redirect some assets to their own children (the grandchildren) or to a surviving spouse, reducing the overall IHT liability on the estate.

Making use of the residence nil rate band

If the will does not leave the family home to direct descendants (which is required for the RNRB), a deed of variation can redirect the property to children or grandchildren, unlocking up to 175,000 pounds of additional tax-free allowance.

Providing for someone who was left out

If the deceased did not update their will to include a new grandchild, a step-child, or a dependant, the beneficiaries can use a deed of variation to provide for them without going through the courts.

Simplifying the estate

Sometimes a deed of variation is used to simplify the administration of an estate. For example, instead of four siblings each inheriting a quarter share of a property (which can cause disputes), they might agree that one sibling takes the property and the others receive equivalent value from other estate assets.

Charitable donations

If at least 10% of the net estate is left to charity, the IHT rate is reduced from 40% to 36%. Beneficiaries can use a deed of variation to redirect a portion to charity, achieving this reduced rate and potentially lowering the overall tax bill.

Requirements for a valid deed of variation

For a deed of variation to be effective for tax purposes, it must meet several conditions:

✓It must be made within two years of the date of death
✓All beneficiaries who are giving something up must consent in writing
✓It must clearly identify the original disposition being varied
✓It must contain a statement that the parties intend it to take effect for IHT and/or CGT purposes
✓It must not be made for any payment or consideration (other than another variation of the same estate)
✓If a beneficiary is under 18, the court must approve the variation
✓A copy must be sent to HMRC within 6 months if it affects the IHT position

Important

A deed of variation cannot be used to benefit the person making it. If a beneficiary redirects their inheritance to someone else but receives a payment or benefit in return, the variation will not be effective for tax purposes. It must be a genuine redistribution with no strings attached.

Using a deed of variation for inherited property

Property is one of the most common assets affected by deeds of variation. Here are some practical considerations when varying the distribution of an inherited property:

If the property has already been transferred into a beneficiary's name at the Land Registry, a deed of variation is still possible within the two year window. However, the Land Registry transfer will need to be corrected to reflect the new arrangement, which adds an extra administrative step.

Where the property needs to be sold as part of the estate administration, it may be simpler to execute the deed of variation before the sale takes place. This avoids the need for multiple transfers and can simplify the capital gains tax position.

If you are planning to sell the inherited property and want to explore whether a deed of variation could help your family's situation, it is worth discussing this with your solicitor early in the process. At HouseBought4Cash, we work alongside families and their solicitors to ensure the sale is timed to fit with the estate's tax planning.

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Frequently asked questions about deeds of variation

Common questions about using a deed of variation for inherited property.

A deed of variation is a legal document that allows beneficiaries to change the way an estate is distributed after someone has died. It effectively rewrites the terms of the will (or intestacy rules) as if the deceased had made those changes themselves. It must be made within two years of the date of death and must be agreed to by all beneficiaries who are affected by the change.

Yes. A deed of variation can be used whether the deceased left a will or died intestate (without a will). Where there is no will, the estate is distributed according to the intestacy rules, but the beneficiaries under those rules can agree to vary the distribution. The same two year time limit applies.

Only the beneficiaries who are giving up something under the variation need to agree. A beneficiary who stands to gain from the variation does not need to consent. However, any beneficiary who is losing out must agree voluntarily - they cannot be forced to participate. If a beneficiary is a minor (under 18), court approval is required.

The cost of a deed of variation depends on the complexity of the arrangement. A straightforward variation drawn up by a solicitor might cost between 500 and 1,500 pounds plus VAT. More complex variations involving property, trusts, or multiple beneficiaries will typically cost more. While there is a cost involved, it is often significantly less than the inheritance tax savings that can be achieved.

Yes. A deed of variation can be used to redirect any asset in the estate, including property. For example, if a parent leaves their house to their adult children, the children could use a deed of variation to redirect it to their own children (the grandchildren) instead. This might be done for inheritance tax planning purposes or simply because the family agrees it makes more sense.

Yes. A deed of variation must be executed within two years of the date of death to be effective for inheritance tax and capital gains tax purposes. After this deadline, the variation can still be made as a private arrangement between beneficiaries, but it will be treated as a gift from the original beneficiary rather than from the deceased, which has different tax implications.

If the deed of variation affects the inheritance tax position, a copy must be sent to HMRC within 6 months of being made. The deed itself must contain a statement that the beneficiaries intend the variation to be treated for IHT purposes as if the deceased had made the revised disposition. Your solicitor will handle this requirement as part of preparing the deed.