What is a deed of variation for inheritance tax planning?
Answered 17 March 2026
Here is a comprehensive answer on deeds of variation for inheritance tax planning.
What is a Deed of Variation for Inheritance Tax Planning?
What the law says
A deed of variation is a mechanism governed by section 142 of the Inheritance Tax Act 1984 (IHTA 1984). It allows beneficiaries of a deceased person's estate to redirect their inherited assets to other recipients, with the variation being treated — for IHT purposes — as if it had been made by the deceased themselves at the date of death.
The key statutory conditions are:
- Two-year time limit: The variation must be made within two years of the person's death.
- Scope: It can vary dispositions made by will, under intestacy rules, or otherwise.
- Effect: The Act applies "as if the variation had been effected by the deceased" — meaning the redirected gift is treated as coming directly from the deceased, not from the original beneficiary.
- Written statement of intent: The instrument must contain a statement by all relevant persons that they intend s.142(1) to apply. Where the variation results in additional tax being payable, the personal representatives must also join in that statement (though they may decline only if insufficient assets are held to discharge the additional tax).
- No consideration: The variation must not be made for any money or money's worth (other than a reciprocal variation or disclaimer within the same estate).
- Charity notification: Where the variation results in property passing to a charity under s.23(1) IHTA 1984, the charity (or trustees) must be notified.
- Trusts: Where a variation results in property being held on trust for a person for a period ending not more than two years after the death, the Act applies as if the final disposition had taken effect from the beginning of that period.
- Administration: The variation is effective whether or not the administration of the estate is complete or the property has already been distributed.
HMRC guidance / practice
Purpose and use: A legatee may execute a deed of variation to reduce the amount of inheritance tax payable by the estate. Unlike a deed of disclaimer (where the beneficiary simply gives up the bequest), a deed of variation allows the beneficiary to redirect the asset to a chosen recipient.
Form of the instrument: HMRC confirms that the instrument does not need to be a formal deed. A letter or note from the beneficiary redirecting their inheritance is acceptable, provided it meets the conditions of IHTA84/s.142.
Statement of intent (post-1 August 2002): With effect from 1 August 2002, the deed must contain a statement of intent that it is to take effect for tax purposes; otherwise the retrospective treatment from the date of death will not apply.
Tax effects:
- IHT: The variation is treated as having been made by the deceased at death, so the redirected assets are assessed as part of the deceased's estate rather than as a transfer by the original beneficiary.
- CGT: The variation can also be effective for capital gains tax purposes under TCGA 1992 s.62(6).
- Income tax: There is no equivalent legislation for income tax — deeds of variation do not operate retrospectively for income tax purposes, though they may change the identity of the person deemed to have received income.
Residence nil-rate band: A deed of variation can be used to redirect a residence to a direct descendant, enabling the deceased's estate to benefit from the residence nil-rate band, as the deed is treated as taking effect on the date of death.
Timing of redistribution: If the variation is made while assets are still in the hands of the personal representatives, the assets pass in accordance with the variation at the end of the administration period. If made after distribution, the parties themselves must arrange redistribution.
Citation sources
A beneficiary normally executes a deed within two years of the death. This means that changes attributable to the deceased can be beneficial for capital gains tax, and inheritance tax purposes. But with effect from 1 August 2002, the changes will only be effective from the date of death (TCGA92/S62(6) and IHTA84/S142) if the deed contains a statement of intent that it is to take effect for tax purposes. Deeds of variation may be effective for capital gains tax and inheritance tax, but they do no
The only stipulation in IHTA84/S142 about the form of an instrument is that it must be in writing. It does not have to be a formal Deed or even writing that is signed as a Deed. You can accept a letter or note from the beneficiary redirecting their inheritance as a valid variation so long as the document conforms to the guidelines and otherwise meets the conditions of IHTA84/S142.
A legatee or legatees of an estate may decide that they do not wish certain assets from the estate to pass to them. One very common reason for this is to reduce the amount of Inheritance Tax payable by the Estate. This can be achieved by the legatee or legatees executing a deed of disclaimer or a deed of variation. If a deed of disclaimer is used the legatee simply gives up the right to receive the bequest. The assets covered by that bequest then have to be dealt with in accordance with the rema
The residence can also be inherited by a direct descendant if it is left to them as a result of amending the deceased’s will by a Deed of Variation within IHTA1984/S142 (IHTM35000). The Deed of Variation has the effect, for inheritance tax purposes, of altering the disposition of the estate on death, so the effect of the Deed has to be taken into account as though it took effect on the death.
PART V MISCELLANEOUS RELIEFS CHAPTER V MISCELLANEOUS Changes in distribution of deceased’s estate, etc. Alteration of dispositions taking effect on death. 142 1 Where within the period of two years after a person’s death— a any of the dispositions (whether effected by will, under the law relating to intestacy or otherwise) of the property comprised in his estate immediately before his death are varied, or b the benefit conferred by any of those dispositions is disclaimed, by an instrument in wri
lation to which section 23(1) applies unless it is shown that the appropriate person has been notified of the existence of the instrument of variation. 3B For the purposes of subsection (3A) “the appropriate person” is— a the charity or registered club to which the property is given, or b if the property is to be held on trust for charitable purposes or for the purposes of registered clubs, the trustees in question. 4 Where a variation to which subsection (1) above applies results in property be