Deed of Variation: Changing a Will After Death

A deed of variation (also called a deed of family arrangement) is a legal document by which the beneficiaries of an estate agree to alter the distribution of assets after the deceased has died. It is a powerful post-death planning tool because, under section 142 of the Inheritance Tax Act 1984 (for IHT) and section 62 of the Taxation of Chargeable Gains Act 1992 (for CGT), the variation is treated as if it had been made by the deceased in their will — meaning the varied distribution is read back to the date of death for tax purposes.

This "read back" effect means that:

• Assets redirected to charity attract the same IHT exemptions as if the deceased had left them to charity in their will
• A gift to a surviving spouse that was not in the will can still qualify for the spouse exemption
• Assets redirected to the next generation can use the recipient's nil-rate band rather than passing through the original beneficiary's estate (avoiding a potential "double tax" on death)
• The original beneficiary does not incur capital gains tax on redirecting the asset, as the deemed disposal is at the probate value

Common reasons to vary an estate include: skipping a generation (grandchildren inherit directly, reducing the tax base in the parent's estate); equalising shares among beneficiaries; making provision for someone omitted from the will; directing assets to charity; or correcting an oversight in the will.

To be effective for IHT and CGT purposes, a deed of variation must be executed within two years of the date of the deceased's death. This deadline is set by statute (IHTA 1984 s.142(1)) and cannot be extended by the courts or HMRC. If the variation is executed after two years, it is still a valid legal document between the parties — but it will not have the "read back" effect for tax purposes. The original beneficiary who redirects their share will be treated as making a gift from their own estate, with potential lifetime IHT and CGT consequences.

The variation can be made at any time within the two-year window — there is no minimum period. However, practical considerations mean it usually cannot be done immediately after death: probate must often be granted first so that asset values are known and the executors can administer the estate.

A related but distinct rule applies to Inheritance Act claims: a claim under the Inheritance (Provision for Family and Dependants) Act 1975 must be issued within six months of the grant of probate or letters of administration. A deed of variation can sometimes be used to resolve an Inheritance Act dispute without litigation, but the six-month deadline for issuing a claim must be kept in view — if a settlement by variation is being negotiated, court proceedings should be issued protectively if the six months are about to expire.

A deed of variation must meet specific requirements to be effective for tax purposes:

1. All redirecting beneficiaries must consent: Only the beneficiary who is giving up (or redirecting) their entitlement needs to sign. If multiple beneficiaries are redirecting, all must sign. Beneficiaries who are not redirecting their share do not need to consent.
2. Written document: The variation must be in writing — an oral agreement is not sufficient. It is customarily executed as a deed (signed, witnessed, and delivered) though strictly only writing is required by statute.
3. IHTA statement: To obtain the read-back effect for IHT, the deed must include a statement that the parties intend section 142 of IHTA 1984 to apply. Similarly for CGT, a statement that TCGA 1992 s.62 is to apply should be included. Without this statement, HMRC will not treat the variation as made by the deceased.
4. No consideration: The variation must not be made in return for payment — if a beneficiary is paid to redirect their inheritance, HMRC may refuse the read-back treatment.
5. HMRC notification: If the variation results in additional IHT being payable (unusual, but possible), HMRC must be notified within six months of the variation. If the variation reduces IHT, no notification is strictly required but it is good practice to inform the estate's tax agent.

A deed of variation cannot be used where beneficiaries cannot legally consent to it. The main categories are:

Beneficiaries under 18: Minors cannot consent to a variation of their inheritance without the approval of the court (via the Court of Protection or in the context of trust proceedings). This requires a separate application, which can be time-consuming and costly. In some cases, executors or trustees can vary a trust without each beneficiary's consent if they have power to do so in the trust instrument, but this does not extend to a statutory deed of variation.

Beneficiaries who lack mental capacity: A person who lacks capacity to consent (due to dementia or other conditions) cannot agree to a variation. The Court of Protection may authorise a variation on their behalf if it can be shown to be in their best interests — but this is not guaranteed and is rarely straightforward.

Unborn beneficiaries: If the will or intestacy rules create a class of beneficiaries that might include unborn children or grandchildren, the position is complex and specialist advice is needed.

The estate's solicitor (or a specialist private client solicitor) should always be involved in drafting and executing a deed of variation. Errors in the document — particularly missing the IHTA or TCGA statements, or failing to identify the redirected assets precisely — can result in the tax benefits being lost.

Section 142 of the Inheritance Tax Act 1984 is the IHT regime. When the conditions are met, the redirected gift is treated as if made by the deceased. The original beneficiary is not treated as making a transfer of value — meaning no 7-year potentially exempt transfer clock starts running, and the original beneficiary does not need to survive 7 years for the gift to be "out" of their estate.

Conditions for the IHT effect under s.142:

• The variation is in writing and signed by all the people whose entitlement is being given up.
• It is made within 2 years of the death.
• It contains an express statement that the parties intend section 142 to apply (a "statement of intention").
• If the variation increases the IHT due, the personal representatives sign too. Personal representatives can refuse only on limited grounds — for example, where the estate has insufficient assets to pay the additional tax.

Section 62(6) of the Taxation of Chargeable Gains Act 1992 is the CGT equivalent. With an equivalent statement of intention, the new beneficiary takes the asset at the deceased's probate value (the "uplifted" base cost) rather than at the original beneficiary's base cost. This is particularly valuable where the asset has risen sharply between death and the variation.

What the rules do not affect: income tax. Any income arising between death and the variation belongs to the original beneficiary and is taxed as theirs. The variation only redirects the capital.

Common errors:

• Missing the 2-year window. Strictly enforced. A deed made on day 731 has no tax effect; the redirection is treated as a fresh gift from the original beneficiary, starting a 7-year PET clock.
• Omitting the statement of intention. Without the express statement that s.142 (or s.62(6)) applies, HMRC treats the variation as a fresh gift. This is the most common failure.
• Failing to obtain the consent of all losers. Including spouses where a survivorship interest is involved, residuary beneficiaries even if their reduction is small, and trustees of any settled property affected.
• Settlor-interest provisions. If the original beneficiary varies into a trust under which they retain a benefit, the IHT effect is lost — the original beneficiary is treated as the settlor.
• Foreign-domicile issues. Where the deceased was non-domiciled or the new beneficiary is, additional issues arise. Seek specialist advice.

A deed of variation is not the only route — the personal representatives can also distribute differently with the consent of all beneficiaries, and the 7-year potentially exempt transfer rules let beneficiaries make onward gifts. But for tax-efficient redirection in the immediate aftermath of death, the deed is usually the cleanest tool.