Deed of Variation: Redirecting a £100,000 Inheritance and the IHT Effect Worked Through
A deed of variation lets a beneficiary give up part or all of an inheritance and redirect it to someone else — for example, a son who passes his £100,000 share down to his own children. If it’s in writing, signed within two years of death by everyone made worse off, and contains the right statutory statement, HMRC treats the redirected gift as though the deceased made it. That “reading back” is what makes it a tax-planning tool, not just a private gift.
What a deed of variation actually does
When someone dies, their estate passes under their will (or, if there’s no valid will, under the rules of intestacy). A deed of variation — also called an instrument of variation, a deed of family arrangement, or simply “varying a will” — lets one or more beneficiaries change who receives what, after the death has already happened.
You don’t alter the will document itself; you can’t do that, it’s set in stone once probate is granted. Instead, the beneficiary who is giving something up signs a separate legal document redirecting their entitlement. HMRC and the gov.uk guidance are blunt about the headline rule: “Any changes to the will must be completed within 2 years of the death” and they only work where “any beneficiaries left worse off by the changes agree.” (gov.uk: How to change a will after a death).
People use a variation for several reasons:
- Skipping a generation — an adult child who doesn’t need the money passes it straight to their own children, keeping it out of their own estate for future IHT.
- Balancing fairness — redirecting a share to a sibling, a relative left out of the will, or a more financially-vulnerable family member.
- Adding charity — routing 10% or more of the estate to charity can pull the whole estate down to the reduced 36% IHT rate.
- Fixing intestacy outcomes — where the intestacy rules produce a result the family agrees isn’t what the deceased would have wanted.
The “reading back” rule: why timing and wording matter
Here’s the part that confuses almost everyone. If you simply inherited £100,000 and then gave it to your children, that would be a gift from you. It would only fall fully outside your estate if you survived seven more years (the potentially-exempt-transfer rule), and in the meantime it sits inside your own estate.
A properly-drafted deed of variation changes that. Under section 142 of the Inheritance Tax Act 1984, where beneficiaries vary the dispositions of the estate within two years and include the right statement, the Act applies “as if the variation had been effected by the deceased.” (Inheritance Tax Act 1984, s.142). In plain terms: for IHT purposes the gift is treated as having come from the person who died — not from you. The seven-year clock never starts, because you were never deemed to make the gift.
There’s an equivalent provision for Capital Gains Tax under section 62 of the Taxation of Chargeable Gains Act 1992, which matters when you’re redirecting assets that have risen in value (a house, shares) rather than cash.
The Whitfield estate. Margaret Whitfield dies in March 2026, leaving an estate of £600,000. Her will divides it equally between her two adult children. Her son, James Whitfield, inherits a £100,000 cash share. James is 52, a higher-rate taxpayer, already owns his home outright, and has a healthy pension. He doesn’t need the £100,000 — but his two teenage children will need help with university and first homes.
Option A — James takes the money, then gifts it. The £100,000 lands in James’s estate. If he then gives it to his children, it’s a potentially exempt transfer from him. If James dies within seven years, some or all of that £100,000 is added back into his estate and could be taxed at up to 40%. Worst case: an extra £40,000 of IHT on his death, plus the money has been counted in his estate for those seven years.
Option B — James signs a deed of variation. Within two years of Margaret’s death, James signs a deed redirecting his £100,000 share to his two children (£50,000 each). The deed contains the statutory statement of intent. Now, under s.142, the law treats the gift as Margaret’s:
- The £100,000 never enters James’s estate. There is no seven-year clock on James.
- The gift is read back into Margaret’s estate — but it was always going to be distributed from her estate anyway, so the total IHT on her estate is unchanged (the same £600,000 is being shared out; it’s just going to different people).
- James’s grandchildren’s generation receives the money cleanly, a generation skipped, with no extra IHT exposure on James’s eventual death.
Net effect: By using the deed rather than a personal gift, James potentially saves his family up to £40,000 of future IHT and removes £100,000 from his own taxable estate the moment the deed is signed — no waiting, no survival risk.
Why “skipping a generation” is the classic use
The Whitfield example is the textbook scenario for a reason. The wealthy middle generation often doesn’t need the inheritance and would only be stacking it onto an estate that’s already heading for IHT. Redirecting it to grandchildren — who do count as direct descendants — keeps the money working for the family without inflating the beneficiary’s own estate. For RNRB purposes, gov.uk confirms direct descendants include “a child, grandchild or other lineal descendant” as well as step, adopted and fostered children (gov.uk: Residence nil rate band).
The four conditions a deed of variation must meet
A variation only gets the favourable tax treatment if it ticks every box below. Miss one and HMRC can ignore the variation for tax — you’d be back to it being a personal gift.
| Condition | What it means in practice | Official source |
|---|---|---|
| In writing | It must be a written instrument. You don’t legally need a formal “deed” — gov.uk says a properly-worded letter can qualify — but in practice a drafted deed is used so nothing is left ambiguous. | gov.uk |
| Within 2 years of death | Signed and completed within 24 months of the date of death. After two years it’s too late for the s.142 treatment — full stop. | IHTA 1984 s.142 |
| Signed by everyone worse off | Every beneficiary whose entitlement is reduced by the change must agree and sign. You can’t take from one person to give to another without that person’s consent. | gov.uk |
| Contains the statement of intent | For any instrument executed on or after 1 August 2002, it must contain a valid statement electing for s.142(1) IHTA 1984 (and, where relevant, s.62(6) TCGA 1992) to apply. “If the instrument does not contain such a statement it is ineffective.” | HMRC IHTM35028 |
One more guardrail worth knowing: the same property can only be varied once. You can’t keep re-cutting the same slice of the estate every time the family changes its mind.
The exact statement the deed must contain
The statement of intent is the single most-missed requirement, and the one that quietly voids amateur deeds. HMRC’s manual is explicit that it must be in the document itself. The wording HMRC accepts (and the form most practitioners follow) is along these lines:
“The parties to this variation intend that the provisions of section 142(1) of the Inheritance Tax Act 1984 and section 62(6) of the Taxation of Chargeable Gains Act 1992 shall apply.”
If you only want the IHT effect (cash, no chargeable gain), you can include just the s.142(1) election. Include the s.62(6) wording where you’re redirecting an asset that could have a CGT consequence, such as a property or shareholding. When in doubt, take advice — this is the clause that decides whether the whole exercise works.
When you must tell HMRC — and what form to use
This trips people up because there is no general requirement to file every deed of variation with HMRC. You only need to send a copy in two situations:
- If the variation increases the IHT due. gov.uk: “If the variation means there’s more Inheritance Tax to pay, you must send a copy to HM Revenue and Customs (HMRC) within 6 months of making it.” (gov.uk).
- If HMRC asks for it as part of reviewing the estate.
HMRC publishes a free self-check tool, the Instrument of Variation checklist (form IOV2), to confirm your variation meets the requirements of both the Inheritance Tax Act and the Taxation of Chargeable Gains Act before you finalise it (gov.uk: IOV2 checklist). Running through IOV2 is a sensible final step even when you don’t have to file anything.
| Scenario | Tell HMRC? | Deadline |
|---|---|---|
| Variation reshuffles beneficiaries, IHT unchanged (e.g. James’s £100,000) | Not required to file the deed proactively | — |
| Variation increases the IHT payable on the estate | Yes — send a copy of the deed | Within 6 months of making it |
| Variation adds 10%+ to charity to claim the 36% reduced rate | Yes — report it as part of the IHT account | With the estate’s IHT account |
| HMRC requests it while reviewing the estate | Yes | As requested |
The numbers that frame the decision (2026)
To judge whether a variation is worth doing, it helps to have the current IHT figures in front of you. All verified against gov.uk for the current tax year:
| IHT figure | Amount / rate | Notes |
|---|---|---|
| Nil-rate band (NRB) | £325,000 | The tax-free threshold below which no IHT is due. |
| Standard IHT rate | 40% | Charged on the value above the available threshold. |
| Residence nil-rate band (RNRB) | Up to £175,000 | Extra band when a home passes to direct descendants — lifting a couple’s combined threshold toward £500,000 each. |
| RNRB taper threshold | £2 million | RNRB reduces by £1 for every £2 the estate exceeds £2m. |
| Reduced charity rate | 36% | Applies to the death rate where 10%+ of the net estate goes to charity. |
Sources: gov.uk: Inheritance Tax and gov.uk: Residence nil rate band. The NRB has been frozen at £325,000 for several years; always re-check the current band before acting, as the freeze and RNRB are reviewed periodically.
- A deed of variation lets a beneficiary redirect an inheritance after death — the will isn’t rewritten, the beneficiary just gives up their share to someone else.
- The s.142 IHTA 1984 “reading back” rule treats the redirected gift as made by the deceased, so it never enters the original beneficiary’s estate and there’s no seven-year clock.
- Four conditions: in writing, within two years of death, signed by everyone made worse off, and it must contain the statutory statement of intent — without that statement HMRC treats it as ineffective.
- You only have to send the deed to HMRC if the change increases the IHT due — then within 6 months. Use HMRC’s IOV2 checklist to self-verify either way.
- Skipping a generation to children/grandchildren is the classic use: it removes the money from the middle generation’s estate immediately, with no survival risk.
Can I do a deed of variation myself, or do I need a solicitor?
Legally you can draft a variation yourself — gov.uk even notes a properly-worded letter can qualify if it meets all the conditions. In practice, the statement of intent and the wording around what’s being redirected are unforgiving: get them wrong and HMRC ignores the variation for tax. For anything beyond a simple cash redirection, a STEP-qualified practitioner or solicitor is well worth the fee relative to the IHT at stake.
Does the person giving up the inheritance pay any tax on it?
No — that’s the whole point of the reading-back rule. Because s.142 treats the gift as coming from the deceased, the beneficiary who redirects it isn’t treated as making a gift themselves, so there’s no personal IHT or seven-year clock on them. The asset is treated as if it had passed under the will to the new recipient.
What happens if we miss the two-year deadline?
The favourable IHT treatment under s.142 is simply not available — the two-year limit is statutory and HMRC can’t extend it. After two years you can still gift the money privately, but it would be a gift from you, with the seven-year potentially-exempt-transfer rules applying. Sign the deed well before the anniversary; don’t leave it to the last week.
Do all the original beneficiaries have to sign?
Only those who are made worse off by the change have to agree and sign. If you’re voluntarily giving up your own share to someone else, you sign; a beneficiary whose entitlement is unaffected doesn’t need to. If a beneficiary affected is a minor or lacks capacity, court approval may be needed — take advice in that situation.
Can a deed of variation get the estate down to the 36% charity rate?
Yes. If the family redirects 10% or more of the net estate to charity via a variation, the whole estate can qualify for the reduced 36% death rate instead of 40%. Because the charity legacy is read back as the deceased’s, the estate gets the relief. This needs to be reported to HMRC as part of the IHT account, and the 10% test is calculated on a specific “net value” basis, so check the maths carefully before relying on it.
Can I vary the same gift more than once?
No. The same property in an estate can only be varied once for these tax purposes. You can’t keep redirecting the same slice as circumstances change. Different parts of the estate can each be varied, but you can’t re-cut a portion that has already been the subject of a variation.
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