Deed of Variation

Varying the terms of a Will 

A Deed of Variation is a powerful and flexible legal instrument, allowing beneficiaries to alter the distribution of a deceased person’s estate after death. It can be of benefit for tax planning, family arrangements, and correcting perceived unfairness or omissions in a will or intestacy.

What is a Deed of Variation?

A Deed of Variation is a formal document by which one or more beneficiaries of an estate redirect all or part of their inheritance to someone else. This can be done whether the estate is being distributed under a will or the intestacy rules. The effect is that, for inheritance tax (IHT) and capital gains tax (CGT) purposes, the redirected gift is treated as if it had been made by the deceased, not the original beneficiary.

Key Features and Requirements

• Timing: The Deed must be executed within two years of the date of death to be effective for IHT and CGT purposes 
• Agreement: All beneficiaries whose entitlement is affected must agree and sign the Deed. If a minor or someone lacking capacity is affected, court approval is required.
• Formality: The Deed must be in writing and signed as a deed. It should clearly state the variation and, if tax effectiveness is intended, must include a statement referencing the relevant tax legislation.
• Tax Implications: If the Deed is intended to be effective for IHT and/or CGT, it must contain a statement to that effect. The variation is then treated as if it had been made by the deceased, not the beneficiary, for tax purposes.
• Notification: If the variation affects the amount of IHT payable, a copy must be sent to HMRC within six months of execution.

Example 

Suppose a will leaves the entire estate to two children equally. One child wishes to pass their share to their own children. If they simply gift the inheritance, it could be subject to IHT if they die within seven years. By executing a Deed of Variation, the share can be redirected to the grandchildren, and for IHT purposes, it is as if the grandmother left it directly to them, avoiding a potential double charge of IHT.

Contact Anthony Harris & Company to discuss this further on 01425 638288 or email reception@harrisco.uk