Deed of Variation Explained

A deed of variation (sometimes called a deed of family arrangement or an instrument of variation) is a legal document that allows a beneficiary to redirect some or all of what they have inherited to someone else. It can apply to gifts left under a will, or to entitlements that arise under the intestacy rules when someone dies without a will.

The person giving up their inheritance is the one who makes the variation — they are choosing to pass on their own entitlement. They might redirect it to a named individual, to several people, or into a trust. Because the redirection can be backdated for tax purposes to the date of death, it can achieve outcomes that would otherwise involve making a lifetime gift with its own tax consequences.

A deed of variation does not rewrite the will itself. The original will still stands; the deed simply changes where a particular beneficiary's share ends up. This distinction matters, because only the parts being given up by consenting beneficiaries can be altered.

For a deed of variation to receive the favourable tax treatment, several conditions must be met. The most important is timing: the variation must be made within two years of the date of death. After two years, the option is lost.

The other main conditions are:

• It must be in writing and clearly identify the part of the estate being varied.
• It must be signed by all the beneficiaries who are giving up or losing out as a result of the change.
• To be effective for inheritance tax, it must contain a statement that section 142 of the Inheritance Tax Act 1984 is to apply. A separate statement is needed for capital gains tax under section 62 of the Taxation of Chargeable Gains Act 1992.
• It must not be made for any consideration (payment) in money or money's worth, other than another variation of the same estate.

When these conditions are satisfied, the redirected gift is read back to the deceased for tax purposes, as if it had been written into the will from the outset. Because of the legal and tax statements involved, deeds of variation are usually drawn up with the help of a solicitor, even though there is no strict requirement to use one.

The power of a deed of variation lies in the "reading back" effect. With the section 142 election included, the inheritance tax position is calculated as though the deceased had made the redirected gift directly. The original beneficiary is not treated as having made a gift of their own.

This is significant. If an inheritance were instead given away during the beneficiary's lifetime, it would normally be a potentially exempt transfer, taking seven years to fall fully outside their own estate for inheritance tax. A deed of variation sidesteps that, because the gift is treated as coming from the deceased, not from the living beneficiary. The matching capital gains tax election means the original beneficiary is generally not treated as disposing of the asset, avoiding a CGT charge on the redirection.

For 2026/27, the inheritance tax nil-rate band remains £325,000 and the residence nil-rate band £175,000, both frozen until at least April 2031, with inheritance tax charged at 40% on the value of an estate above the available allowances. A deed of variation can be used to make better use of these allowances across a family — for example, by directing assets so that more than one person's nil-rate band is used efficiently.

People use deeds of variation for a range of practical and tax-planning reasons. A frequent one is generation-skipping: an adult child who inherits but does not need the money can redirect it to their own children, removing it from their estate without starting their own seven-year clock. This can be valuable where the inheriting generation already has an estate likely to face inheritance tax.

Other common uses include:

• Correcting or updating a will that no longer reflects the family's circumstances or wishes.
• Providing for someone left out, such as a grandchild, a new partner, or a dependant not named in the will.
• Equalising inheritances between family members where the will divided things unevenly.
• Creating a trust to hold assets for younger or vulnerable beneficiaries rather than passing them outright.
• Making use of allowances, ensuring nil-rate bands and exemptions are applied as efficiently as possible.

Each of these can have knock-on effects for the people involved, so it is worth understanding the full picture before signing. Because the change is generally irreversible once made, getting the wording and the intentions right at the outset is essential.

A deed of variation can also be used to direct part of an estate to charity, and this carries a specific inheritance tax incentive. Gifts to qualifying UK charities are exempt from inheritance tax. In addition, where at least 10% of the chargeable estate (the relevant "baseline" amount) is left to charity, the rate of inheritance tax on the rest of that component falls from 40% to 36%.

This means that if an original will left nothing to charity, the beneficiaries can, within two years, vary it to include a charitable gift and potentially benefit from the reduced 36% rate. For larger estates, the arithmetic can make the charitable gift partly self-funding: the charity receives a real legacy, the overall inheritance tax bill falls, and the family's net position may be little changed. It is a neat illustration of how a deed of variation can serve both philanthropic and tax-planning goals at once.

A deed of variation is powerful but not unlimited. Every beneficiary who would lose out from the change must agree and sign — you cannot redirect someone else's share without their consent. If a beneficiary affected by the variation is a minor or lacks mental capacity, court approval is generally required, which can be slow and is not guaranteed.

It is also important to remember the two-year deadline is strict, and that a variation made for payment will not qualify for the tax reading-back. The interaction with trusts, with the residence nil-rate band conditions, and with means-tested benefits can be complex, and a poorly drafted deed can fail to achieve its aim or create unintended tax consequences. For all these reasons, deeds of variation are an area where professional legal and financial advice is particularly valuable.