Deed of Variation on Inherited Property: The IHT and CGT Numbers Worked Out
A deed of variation lets a beneficiary redirect a house they have inherited — for example to a surviving spouse — and have it treated for tax as if the deceased had left it that way. Done correctly within two years, it “reads back”: the spouse exemption can wipe out the Inheritance Tax, and no Capital Gains Tax disposal happens at the date of the variation. The trap is Stamp Duty Land Tax, which can bite the moment any consideration — including taking over a mortgage — changes hands.
What a deed of variation actually does to a house
When someone dies and leaves you their home (or a share of it), you become entitled to it under the will or the intestacy rules. A deed of variation (sometimes called an instrument of variation, or a deed of family arrangement) lets you give up that entitlement and redirect the property to someone else — a spouse, a child, a trust — without it counting as a fresh gift from you.
That last point is the whole game. Ordinarily, if you inherited a house and then handed it to your wife, that would be a gift by you, with all the Capital Gains Tax and seven-year-survival consequences that flow from a lifetime gift. A valid variation instead tells HMRC: treat this as though the deceased’s will had said this all along. The technical name for that is “reading back” or “writing back,” and it is granted by two separate pieces of law — one for Inheritance Tax, one for Capital Gains Tax.
Inheritance Tax: section 142(1) Inheritance Tax Act 1984 — the varied gift is treated as having been made by the deceased, not by you.
Capital Gains Tax: section 62(6) Taxation of Chargeable Gains Act 1992 — the asset is treated as passing to the new beneficiary directly from the estate, so you make no disposal.
You must include a written statement in the deed saying which of these you want to apply. See HMRC’s Inheritance Tax Manual IHTM35021 and Capital Gains Manual CG31650.
The conditions you must meet (all of them)
Reading back is not automatic. HMRC will only treat the variation as effective for tax if every condition below is satisfied. Miss one and you are back to it being an ordinary gift by you.
| Condition | What it means in practice |
|---|---|
| In writing | A signed deed (or a letter that meets the conditions). An informal family agreement does not qualify. |
| Within two years of death | The instrument must be made within two years after the date of death — a hard deadline with no extensions. |
| Signed by everyone worse off | Every beneficiary who loses out from the change must be a party and must agree. A minor or unborn beneficiary needs court approval. |
| Contains the statement of intent | The deed must state that s.142(1) IHTA and/or s.62(6) TCGA is to apply (required for instruments after 1 August 2002). |
| No consideration in money or money’s worth | Nobody can be paid to agree — except where the only “payment” is another variation of the same estate. |
| Sent to HMRC if more tax is due | If the variation increases the Inheritance Tax, a copy must reach HMRC within six months of the variation. |
Source: GOV.UK — How to change a will after a death and IHTM35021.
Worked example: redirecting a £350,000 home to a surviving spouse
This is the classic reason a family reaches for a deed of variation on property: a will that left the house to the children, when redirecting it to the surviving spouse would have removed a tax bill entirely.
The family. Margaret Whitlock dies in March 2026. Her estate is her home in Leicester, worth £350,000, plus £240,000 of savings and investments — a total estate of £590,000. Her will leaves the house to her two adult children, Tom and Bryony, and the £240,000 to her husband, David. Margaret and David were married and both UK-domiciled.
The problem with the will as written. The £240,000 to David is covered by the spouse exemption — transfers between UK-domiciled spouses are free of Inheritance Tax with no upper limit (GOV.UK — Inheritance Tax). But the £350,000 house goes to the children, which is a chargeable transfer.
Margaret’s nil-rate band is £325,000. Because the home passes to direct descendants, the residence nil-rate band of up to £175,000 is also available (GOV.UK — RNRB guidance). So as written, the children’s £350,000 is fully sheltered — £325,000 + £175,000 = £500,000 of allowance against a £350,000 gift. No IHT is due on Margaret’s death here.
So why vary it? Because David is 78 and in poor health, and the family wants to keep the maximum allowances banked for David’s eventual estate. By redirecting the house to David now, Margaret’s £325,000 nil-rate band and £175,000 residence nil-rate band are left completely unused — and an unused nil-rate band and residence nil-rate band can transfer to the surviving spouse. When David later dies, his estate can claim up to two full nil-rate bands (£650,000) and two residence nil-rate bands (£350,000): up to £1,000,000 of allowance, provided he leaves a qualifying home to direct descendants and his estate is below the £2,000,000 taper threshold.
The variation. Within two years of Margaret’s death, Tom and Bryony sign a deed of variation redirecting the £350,000 house to David. The deed states that both s.142(1) IHTA and s.62(6) TCGA are to apply.
The IHT result, step by step:
- Reading back under s.142(1): the house is treated as left to David by Margaret’s will.
- The whole estate — £350,000 house + £240,000 other — now passes to David, a UK-domiciled spouse.
- Spouse exemption covers all £590,000. IHT on Margaret’s death: £0.
- Margaret’s £325,000 nil-rate band and £175,000 residence nil-rate band are unused, so they can transfer to David’s estate when he dies.
The CGT result: Because s.62(6) is claimed, Tom and Bryony are treated as never having owned the house. There is no disposal at the date of the variation, so no CGT for them and no gain crystallised. David is treated as acquiring the property from the estate at its probate (death) value of £350,000 — the base cost for any future sale. (CG31650.)
The CGT “reading back”: why no disposal happens
This is the part people most often get wrong. Without s.62(6), redirecting a house you have inherited would be a disposal by you for Capital Gains Tax. If the property had risen in value between the date of death and the date you handed it over — even by a few thousand pounds — you could face a CGT bill on that uplift.
When the deed contains the s.62(6) statement and meets the conditions, the law treats the variation as if the deceased had made the gift. The original beneficiary makes no disposal on the date of the variation. The new beneficiary takes the asset at its value at the date of death as their base cost.
Suppose Margaret’s house was worth £350,000 at her death in March 2026, but by the time Tom and Bryony sign the deed in November 2026 the local market has lifted it to £362,000. Without a s.62(6) statement, Tom and Bryony would each be treated as disposing of their half-share, with a notional £6,000 gain each over death value — potentially chargeable to CGT. With the s.62(6) statement, there is no disposal at all, the £12,000 uplift is ignored, and David simply takes the property with a £350,000 base cost.
One caveat worth flagging: where there has been actual income or use of the asset between death and variation, the reading-back is not always total — HMRC’s manual notes the instrument varies the effects of the will rather than the will itself (CG31600). For a straightforward redirection of a house this is rarely a problem, but it is a reason to use a solicitor on anything with rental income attached.
Stamp Duty Land Tax: the trap that catches families
Here is where a clean tax-saving move can quietly turn into a charge. Inheriting property is not a chargeable transaction for Stamp Duty Land Tax — you pay no SDLT simply because you were left a house. A variation that redirects the property also escapes SDLT provided no consideration is given for it. The exemption sits in paragraph 4 of Schedule 3 to the Finance Act 2003 (SDLTM04045).
The danger word is consideration. The most common way families trip over this is a mortgage. If the inherited house still has a mortgage on it, and the person receiving the property under the variation takes over (assumes) liability for that debt, HMRC treats the amount of debt assumed as chargeable consideration for SDLT.
| Scenario | SDLT? |
|---|---|
| House redirected to spouse, no mortgage, nothing paid in return | No — exempt (no consideration) |
| House redirected, beneficiary takes over the outstanding mortgage | Potentially yes — debt assumed is chargeable consideration |
| One beneficiary “buys out” another’s share with cash | Yes — cash paid is consideration |
| Two beneficiaries each vary their gifts as part of the same family arrangement | No — a variation given in exchange for another variation of the same estate is excluded |
Change the facts slightly. Margaret’s £350,000 house carries a remaining mortgage of £120,000. The will left the house to Tom alone. Tom signs a deed of variation passing the property to his sister Bryony — and as part of the arrangement Bryony agrees to take over the £120,000 mortgage. That assumed debt is chargeable consideration. SDLT is calculated on the £120,000, not the full £350,000, and the transaction may need to be notified to HMRC. The IHT and CGT reading-back can still work, but the SDLT charge that nobody budgeted for is now real. The fix is usually to clear the mortgage from other estate assets before the variation, so the property passes free of debt.
Updating HM Land Registry after the variation
The deed of variation changes who is entitled to the property for tax, but it does not by itself change the register. The legal title still has to be transferred to the new beneficiary and the register updated, otherwise the official record will not match reality.
In practice the personal representatives (the executors or administrators) assent the property to whoever the variation now directs it to, and an application is made to HM Land Registry to register the new owner. Where the title is registered, this is normally an assent (form AS1) plus the relevant application form, supported by the grant of probate or letters of administration. HM Land Registry’s guidance on transferring ownership after a death is at GOV.UK — Update property records when someone dies.
Two practical points: keep the deed of variation with the conveyancing file (HMRC and a future buyer’s solicitor may want to see it), and make sure the assent reflects the varied destination, not the original will. Registering the wrong person and unwinding it later is far more expensive than getting it right the first time.
- A deed of variation lets you redirect an inherited house and have it treated as if the deceased left it that way — not as a gift by you.
- Reading the gift to a UK-domiciled spouse can use the unlimited spouse exemption and bank the £325,000 nil-rate band plus up to £175,000 residence nil-rate band for the survivor’s estate.
- The s.62(6) TCGA statement means there is no CGT disposal at the date of variation; the new owner takes the death-date value as base cost.
- Get all six conditions right: in writing, within two years, signed by everyone worse off, the statutory statement, no consideration, and notify HMRC within six months if more IHT is due.
- Watch SDLT: taking over a mortgage or paying cash for a share is consideration and can trigger a charge even when IHT and CGT are clean.
- Finish the job at HM Land Registry — assent the property to the varied beneficiary and register the change.
Frequently asked questions
Is there a deadline for a deed of variation?
Yes — a hard one. The instrument must be made within two years of the date of death for it to read back for Inheritance Tax and Capital Gains Tax. There is no extension, so families dealing with a large estate should not leave it to the last month. See GOV.UK.
Does redirecting a house to my spouse remove all the Inheritance Tax?
For a transfer to a UK-domiciled spouse or civil partner, the spouse exemption applies with no upper limit, so the value redirected to them carries no IHT on this death. It can also leave the deceased’s nil-rate bands unused, and those can transfer to the survivor’s estate. Whether it is the right move depends on the survivor’s own estate position (GOV.UK — Inheritance Tax).
Will I pay Capital Gains Tax for giving up the house?
Not if the deed includes the section 62(6) TCGA 1992 statement and meets the conditions. You are then treated as making no disposal at the date of the variation, so there is no CGT for you, and the new beneficiary takes the property at its date-of-death value (CG31650).
Does a deed of variation trigger Stamp Duty Land Tax?
Usually no — a variation made for no consideration is exempt under paragraph 4 of Schedule 3 to the Finance Act 2003. But if the person receiving the property assumes a mortgage, or someone pays cash for a share, that consideration can make SDLT payable on the amount given (SDLTM04045).
Do I have to tell HMRC about the variation?
You only have to send HMRC a copy where the variation results in more Inheritance Tax being payable — and then within six months of making it. If it does not increase the tax, you keep the deed with your records but do not have to submit it (GOV.UK).
Can the beneficiaries change a will if some of them are children?
Every beneficiary who is left worse off must agree to the variation. Where a beneficiary is a minor or not yet born, you cannot simply sign on their behalf — the variation needs the approval of the court, which adds cost and time. This is one of several reasons to take professional advice before redirecting valuable property.
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