Inheritance Tax · Planning

Deed of variation: the 2-year rule for redirecting an inheritance

Q: How long do I have to make a deed of variation?

Two years from the date of death, with no exceptions. It does not have to be a formal deed — a signed letter can work if it contains the correct tax statement. After the two-year window closes, any redirection is treated as an ordinary gift subject to the normal 7-year survival rule.

Q: Does everyone affected have to agree?

Yes — every beneficiary whose entitlement is reduced must sign. If the variation means more inheritance tax becomes payable, the executors must also sign. A variation affecting a beneficiary under 18 needs court approval.

Q: Can I use a deed of variation to avoid care home fees?

Using a deed of variation specifically to deprive yourself of assets to qualify for means-tested care funding can be challenged by the local authority as deliberate deprivation of assets. Take advice before using a variation with a care-funding motive.

Q: Does a deed of variation affect capital gains tax too?

Yes, if the deed includes the right statement — the new beneficiary inherits the asset at its probate value as their base cost. Each asset can only be varied once with this tax treatment.

A beneficiary can redirect an inheritance within 2 years of death — backdated for tax as if the person who died had left it that way. Miss the window and the same redirection becomes an ordinary gift, subject to the full 7-year survival rule.

Every beneficiary whose share shrinks must consent — you cannot vary someone else's inheritance for them.

This page covers: what a deed of variation actually does · the most common reasons to use one · how to make one correctly · who must sign · the limits that catch people out.

§1

What a deed of variation is

It rewrites the will for tax purposes — as if the change had been there all along. A deed of variation redirects some or all of a beneficiary's inheritance to someone else. Provided it's done correctly and in time, HMRC treats the gift as if the person who died made it — not as a gift from the beneficiary, which would otherwise be subject to their own 7-year rule.

The 2-year deadline

Must be signed within 2 years of the date of death — no extensions, no exceptions. It doesn't have to be a formal deed; a signed letter with the correct tax statement can work just as well.

Who must sign

Every beneficiary whose share is reduced by the variation. If more tax becomes payable as a result, the executors must also sign. A variation affecting anyone under 18 needs court approval first.

§2

Why people use one

Most deeds of variation exist to do one of four things. All four are legitimate, well-established uses — none require anything exotic, just the right paperwork within the two-year window.

Redirect straight to grandchildren

Skip a generation when the immediate beneficiaries — often adult children — already have large estates of their own. The gift is treated as coming from the person who died, so it isn't a fresh gift for the child's own future estate.

Hit the 36% charity rate

Redirecting enough of the estate to bring charitable giving to 10% of the net estate cuts the rate on the rest of the taxable estate to 36%, down from the standard 40%.

Provide for someone left out

Add a grandchild, stepchild, partner or carer who wasn't named in the original will, with consent from whoever's share is reduced to make room for them.

Rebalance between spouses

Redirect part of the estate to use a nil-rate band on the first death rather than relying entirely on the transferable NRB later — see the inheritance tax calculator to check the numbers, best confirmed with an adviser.

§3

How to do it

Four steps, and the wording of one document is the part that actually matters. Everything else is straightforward — getting the statutory tax statement right is where a badly drafted deed loses the relief entirely.

Step 1

Agree it with everyone affected

Every beneficiary whose share shrinks must consent. If a minor is affected, get court approval before proceeding — courts rarely approve a change that reduces a child's inheritance.

Step 2

Draft the deed with the tax statement

Include the specific statement that the IHT and CGT reading-back rules are to apply. Miss this wording and the variation is just an ordinary gift — with no backdating relief at all.

Step 3

Sign — everyone affected, plus executors if needed

All affected beneficiaries sign. If the variation increases the inheritance tax payable, the executors must sign too — their signature confirms they'll account for the extra tax.

Step 4

Notify HMRC if more tax is due

If the deed increases the IHT or CGT payable, send a copy alongside the IHT400 within 6 months of the variation. If it doesn't increase the tax due, there's no requirement to notify HMRC at all.

§4

Limits and traps

A deed of variation is powerful, but it isn't a loophole — HMRC and the courts both watch how it's used. Four limits catch people out most often.

Can't be forced on anyone

No beneficiary can be made to give up their share. A deed of variation only works with the genuine consent of everyone whose entitlement it reduces — there is no mechanism to override a refusal.

One shot per asset

Once an asset has been varied, it cannot be varied again with the same tax treatment. Get the deed right the first time — there's no second attempt on the same asset.

Doesn't reclaim tax already paid

A variation changes the position going forward — it doesn't retrospectively refund inheritance tax that has already been correctly assessed and paid before the deed was signed.

Care-fee deprivation risk

Using a variation specifically to qualify for means-tested care funding can be challenged by the local authority as deliberate deprivation of assets — the value can still be counted against you.

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FAQ

Common questions

01What is a deed of variation?›

A deed of variation is a document signed by a beneficiary that redirects some or all of their inheritance to someone else — a spouse, a child, a grandchild, or a charity. For inheritance tax and capital gains tax purposes, HMRC treats the redirected gift as if the person who died had made it that way in their will — the variation is backdated to the date of death, not treated as a gift from the beneficiary who signed it.

02How long do I have to make a deed of variation?›

Two years from the date of death — no exceptions. It does not have to be a formal deed; a signed letter setting out the change can work, provided it contains the correct statement that the tax rules are to apply.

But once the two-year window closes, any redirection is treated as an ordinary gift from the beneficiary — subject to the normal 7-year survival rule, not backdated relief.

03Does everyone affected have to agree?›

Yes — every beneficiary whose entitlement is reduced by the variation must sign it. You cannot vary someone else's inheritance without their consent. If the variation means more inheritance tax becomes payable, the executors must also sign.

If a beneficiary affected is under 18, the variation needs court approval before it takes effect — a court will not readily approve a change that reduces a child's inheritance.

04Can I use a deed of variation to avoid care home fees?›

Be very careful here. A deed of variation is a legitimate estate-planning tool, but using one specifically to deprive yourself of assets to qualify for means-tested care funding can be challenged by the local authority as deliberate deprivation of assets — the notional value can still be counted against you. This is different from ordinary tax planning; take advice before using a variation with a care-funding motive in mind.

05Do I need a solicitor to make a deed of variation?›

Not legally — you can draft one yourself or use a letter, provided it meets the statutory requirements. But the wording of the tax statement matters enormously: get it wrong and you lose the backdating relief entirely, with no way to fix it after the fact. Most people use a solicitor for anything beyond a simple, uncontested change — the cost of getting it wrong usually far exceeds the cost of drafting it properly.

06Does a deed of variation affect capital gains tax too?›

Yes, if you include the right statement. A properly worded deed of variation can apply for both IHT and CGT purposes — meaning the new beneficiary inherits the asset at its probate value as their base cost, exactly as if they had been left it directly. You only get one shot per asset: once varied, that asset cannot be varied again with the same tax treatment.

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