Deed of Variation on Inherited Property: Worked Example of Redirecting a House and the SDLT Trap
A deed of variation lets a beneficiary redirect property they inherit — for example, passing a house on to their own children — and have the gift treated, for Inheritance Tax and Capital Gains Tax, as if it came straight from the person who died. To work, the deed must be in writing, made within two years of death, signed by everyone made worse off, and carry the right tax election wording. The biggest mistake is giving something in return — most commonly taking on the outstanding mortgage — because that "consideration" can drag the transfer into Stamp Duty Land Tax.
What a deed of variation actually does
When you inherit something, it's legally yours. If you then give it away, that's a gift from you — which could create a seven-year Inheritance Tax (IHT) clock on your own estate and a Capital Gains Tax (CGT) charge if the asset has risen in value. A deed of variation (sometimes called an instrument of variation or a deed of family arrangement) sidesteps that. Used correctly, the law treats the redirected gift as though the deceased had left it to the new beneficiary directly.
The two statutory engines are section 142 of the Inheritance Tax Act 1984 (for IHT) and section 62(6) of the Taxation of Chargeable Gains Act 1992 (for CGT). HMRC's guidance summarises the core conditions: the change must be completed within 2 years of the death, made by an instrument in writing, and agreed by any beneficiaries left worse off by the change (GOV.UK: How to change a will after a death).
Worked example — redirecting a £400,000 house
The family. James dies in March 2026. His will leaves his mortgage-free house, worth £400,000 at the date of death, to his sister Priya. Priya is comfortable and would rather the house go to her two adult children, Anil and Maya. She decides to vary her inheritance so the house passes to them instead.
Step 1 — Confirm the deadline. James died March 2026, so the deed must be executed by March 2028. Priya is well inside the window.
Step 2 — Draft the deed. The deed states that the house, which under the will passed to Priya, is instead to be held for Anil and Maya in equal shares as if James had left it to them directly. It includes the IHT and CGT election statements (see the template walkthrough below).
Step 3 — Crucially, no consideration changes hands. Anil and Maya pay Priya nothing. The house is mortgage-free, so there is no debt to assume. This keeps the variation purely gratuitous.
The IHT result. The £400,000 is treated as passing from James's estate to Anil and Maya. It never enters Priya's estate, so it does not start a 7-year clock against her. (If James's estate already used available nil-rate band, the IHT was settled at his death regardless of who receives the house.)
The CGT result. Anil and Maya take the house with a CGT base cost of £400,000 — its probate / date-of-death value — not Priya's. Their future gain is measured from £400,000, so the act of redirecting it triggers no CGT itself.
The SDLT result. Because nothing was given in return — no cash, and no mortgage to take on — there is no chargeable consideration, so no Stamp Duty Land Tax and no SDLT return.
The SDLT / Land Transaction Tax trap
This is where well-meaning families get caught. Property left under a will — even property with a mortgage — is almost always free of SDLT, on condition that no other chargeable consideration is given. HMRC is explicit that there's no need to tell them and no SDLT to pay where you receive land under a will, "even if you take on an outstanding mortgage on the property on the date the person died" — provided no other consideration changes hands (GOV.UK: SDLT transactions that don't need a return).
The trap is that chargeable consideration includes the transfer or assumption of a debt, including the value of an outstanding mortgage. SDLT's taxable value can include "transfer of a debt, including the value of any outstanding mortgage" (GOV.UK: Stamp Duty Land Tax). So the picture changes the moment a variation is given in exchange for something of value.
Worked example — the same house, but with a mortgage
Now assume James's house was worth £400,000 but carried an outstanding mortgage of £150,000, and that under a deed of variation the house passes to Anil and Maya on the condition that they take over the mortgage and release Priya/the estate from it.
By taking on the £150,000 debt, Anil and Maya are giving consideration in money's worth. That £150,000 becomes chargeable consideration for SDLT. SDLT is then assessed on £150,000 — not on the full £400,000, and not nil. With the standard residential nil-rate threshold at £125,000, the slice above that is potentially taxable, and an SDLT return becomes due (GOV.UK: SDLT). The same logic applies to Land Transaction Tax (LTT) in Wales (LTT replaced SDLT in Wales in 2018) — check the Welsh Revenue Authority bands for property in Wales.
The further sting: assuming a mortgage as consideration also undermines the s.142(3) IHTA position — see below — because a variation "made for any consideration in money or money's worth" falls outside the relief. The clean fix is usually for the deed to redirect the property without tying it to the mortgage, and for the loan to be dealt with separately (e.g. repaid from other estate assets, or remortgaged after the title transfers gratuitously). Always take advice before structuring this.
| Scenario | Consideration given? | SDLT / LTT? | SDLT return needed? |
|---|---|---|---|
| Mortgage-free house redirected by deed of variation, nothing paid | None | No | No |
| Mortgaged house received under the will, beneficiary assumes the mortgage but gives nothing else | Assumption of secured debt only (exempt under the inheritance rule) | No | No |
| Deed of variation where the new beneficiary takes on the mortgage as the price of receiving the house | Yes — debt assumed as consideration | Potentially, on the debt amount above £125,000 | Yes, if over threshold |
| Deed of variation where the new beneficiary pays cash to the original beneficiary | Yes — cash | Potentially, on the cash amount | Yes, if over threshold |
Thresholds and bands change at fiscal events — always confirm the current SDLT residential rates on GOV.UK (or LTT rates with the Welsh Revenue Authority) before you complete.
Updating the Land Registry title
A deed of variation changes who is entitled to the property, but it does not, by itself, change the legal title at HM Land Registry. The personal representatives (executors) still need to transfer the legal estate to the new beneficiaries. In practice that's done by an assent (form AS1 for a whole registered title) executed by the personal representatives in favour of Anil and Maya, supported by the deed of variation as evidence of where the property should go.
Documents HM Land Registry typically needs
- The completed transfer/assent — usually form AS1 (whole of registered title) or AS3 (part), executed by the personal representatives.
- An application form AP1 (change the register).
- The grant of probate (or letters of administration) confirming the personal representatives' authority.
- The deed of variation itself, showing the redirection of the gift.
- Confirmation that any SDLT has been dealt with where chargeable — HM Land Registry will want the SDLT certificate (form SDLT5) if a return was required.
- The correct fee under the current HM Land Registry fee scale.
Forms, fees and current requirements are on GOV.UK: HM Land Registry forms. Conveyancing on a deceased estate is fiddly — most families instruct a solicitor or licensed conveyancer for the assent.
CGT base cost for the new beneficiary
This is one of the deed of variation's quiet advantages. Because s.62(6) TCGA 1992 treats the redirected gift as made by the deceased, the new beneficiary inherits with a CGT acquisition cost equal to the market value at the date of death (the probate value) — not the value at the date of the deed, and not the original beneficiary's cost.
Worked example — when the house has gained since death
James died March 2026 with the house valued at £400,000 for probate. The deed of variation isn't completed until February 2027, by which point the local market has risen and the house is worth £430,000.
Anil and Maya's CGT base cost is still £400,000 — the date-of-death value — because the variation reads back to James's death. The £30,000 of growth between death and the deed is not a taxable gain crystallised on them by the variation.
If they later sell for, say, £460,000, their gain is measured from £400,000 (£60,000, before reliefs and the annual exempt amount). Had Priya simply given them the house herself (no deed), her gift could have triggered CGT on her — and their base cost might have differed. The reading-back is the whole point.
Watch out: the deed must contain the CGT election (s.62(6)) for this treatment to apply. With effect from 1 August 2002, the change is only effective from the date of death if the deed contains a statement that it is to take effect for tax purposes (HMRC IHTM35028).
Template walkthrough: the essential clauses
A deed of variation isn't a fill-in-the-blanks form — getting the clauses and elections right is exactly why people instruct a STEP-qualified practitioner. But you should understand what a valid deed contains:
1. The recitals
Who died and when; that probate was granted; what the will (or intestacy) provided; who the parties to the deed are; and which gift is being varied.
2. The operative variation
The clause that actually redirects the gift — e.g. "The property at [address] which under the Will passed to Priya shall instead be held for Anil and Maya in equal shares absolutely, as if the Deceased had so provided by his Will." It must be made within two years of death by the person(s) who would otherwise benefit (s.142(1) IHTA 1984).
3. The IHT and CGT election wording
For variations executed on or after 1 August 2002, the deed must include a statement of intent. HMRC's example wording is:
"The parties to this variation intend that the provisions of section 142(1) Inheritance Tax Act 1984 and section 62(6) Taxation of Chargeable Gains Act 1992 shall apply"
You can elect for one tax, both, or neither — include only the sections you want to apply. (Source: HMRC IHTM35028.)
4. The "no consideration" position
By default the deed should make clear the variation is not made for consideration in money or money's worth. Under s.142(3) IHTA 1984, the IHT relief does not apply "to a variation or disclaimer made for any consideration in money or money's worth," except where the consideration consists only of making a corresponding variation of another disposition (Inheritance Tax Act 1984, s.142). This is the legal root of the SDLT trap above — money or money's worth (including assuming a mortgage as a quid pro quo) breaks the relief.
5. Signing and witnessing
The variation must be in writing and signed by all the parties — critically, by every beneficiary made worse off by the change. While a simple signed letter can satisfy HMRC if it meets all the conditions, a formal deed is strongly preferred and, in England and Wales, a deed should be signed in the presence of an independent witness who also signs. If the variation results in more IHT being due, the personal representatives must also sign and a copy must be sent to HMRC within 6 months of making it (GOV.UK: How to change a will after a death).
Quick checklist before you sign
| Condition | Why it matters |
|---|---|
| Within 2 years of death | Outside this window, s.142/s.62 relief is gone — it's just a lifetime gift from you. |
| In writing, signed by all worse-off beneficiaries | A redirection nobody disadvantaged objects to; missing signatures invalidate it. |
| IHT election (s.142(1)) included | Makes the gift read back to the deceased for Inheritance Tax. |
| CGT election (s.62(6)) included | Gives the new beneficiary the date-of-death base cost. |
| No consideration in money or money's worth | Protects the relief and avoids the SDLT/LTT trap. |
| HMRC copy within 6 months (if more IHT due) | A statutory deadline; missing it can cost the relief. |
| Land Registry assent + AP1 filed | Transfers legal title to the new owners. |
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Frequently asked questions
Can I do a deed of variation on a house with a mortgage without paying stamp duty?
Yes, if you structure it cleanly. Property inherited under a will is exempt from SDLT even if you take on the existing mortgage at the date of death — provided no other consideration is given. The trap is making the redirection conditional on someone taking on the mortgage as the price of receiving the house. That assumption of debt counts as chargeable consideration, so SDLT (or LTT in Wales) can apply on the debt amount above the £125,000 threshold. Deal with the loan separately and take advice.
What is the time limit for a deed of variation on inherited property?
The variation must be completed within 2 years of the date of death. Outside that window the s.142 IHTA and s.62 TCGA reliefs no longer apply, so the redirection is treated as a lifetime gift from you instead of from the deceased.
What CGT base cost does the new beneficiary get?
If the deed includes the s.62(6) TCGA 1992 election, the new beneficiary acquires the property at its market (probate) value at the date of death. Any rise in value between death and the deed is not crystallised on them by the variation — their future gain runs from the date-of-death value.
Does a deed of variation automatically change the Land Registry title?
No. The deed redirects entitlement, but the personal representatives still have to transfer the legal estate, usually by an assent (form AS1) plus an AP1 application, supported by the grant of probate and the deed of variation. HM Land Registry will also want the SDLT5 certificate if a return was required.
What wording makes the tax elections valid?
For deeds executed on or after 1 August 2002, HMRC's example statement of intent is: "The parties to this variation intend that the provisions of section 142(1) Inheritance Tax Act 1984 and section 62(6) Taxation of Chargeable Gains Act 1992 shall apply." Include only the sections you want to apply.
Do I need to tell HMRC about the deed of variation?
Only if it increases the Inheritance Tax due — in which case the personal representatives must sign and a copy must reach HMRC within 6 months of making the variation. If it doesn't increase the IHT, you generally keep the deed with the estate papers rather than filing it.
The date-of-death valuation sets the new owner's CGT base cost — get the house properly valued at death.
No s.142 / s.62(6) statement, no read-back. It's the single most common drafting failure we see.
General information, not personal United Kingdom tax/legal advice. Verify with a qualified professional.
Sources: GOV.UK — How to change a will after a death; GOV.UK — Stamp Duty Land Tax; GOV.UK — SDLT transactions that don't need a return; HMRC Inheritance Tax Manual IHTM35028; Inheritance Tax Act 1984, s.142; Taxation of Chargeable Gains Act 1992, s.62; GOV.UK — HM Land Registry forms. Figures verified 2026-06-03; confirm current thresholds before completing.