What Is a Deed of Variation?

To many people, the words 'Deed of Variation' have little or no meaning, especially when it comes to their use in financial and estate planning. But what exactly is a Deed of Variation and how can it help you?

What Is It?

When the beneficiary of an estate receives an inheritance, the value of that inheritance is instantly added to the beneficiary's own estate.

For many people this would sound like a blessing and not a problem. However, what people often fail to consider is that once the value has been added to their estate, it is then also included in the calculations to work out if any Inheritance Tax (IHT) will be due upon their death.

For those concerned about such a prospect, this is where a Deed of Variation can prove very useful.

How Does It Work?

A Deed of Variation allows a person to remove any amount of inherited wealth from their own estate and pass it on for the benefit of those they care about (e.g. their children).

Once done, this wealth is then instantly excluded from their own estate for Inheritance Tax purposes.

Sounds useful, doesn't it? Well, there's one key rule to bear in mind:

It MUST BE COMPLETED WITHIN 2 YEARS of the date that the person who left you the wealth died.

A Simplified Illustration

The example below is a simplified illustration only. It ignores trust taxation and other factors that would apply in real life, and is included purely to show the principle:

The Situation:

Ann and Reginald are married and have jointly owned assets worth £900,000. Ann's mother has recently died and in her Will, Ann has been left a legacy of £300,000.

Under current rules (2026/27):

• Ann and Reginald each have a standard Inheritance Tax allowance of £325,000
• Plus an additional £175,000 Residential Nil Rate Band (for leaving the house to their children)
• This means their combined allowance totals £1,000,000

The Problem:

The value of their estate is now £1,200,000, meaning that the £200,000 excess will be taxed at 40% upon their death, resulting in an IHT bill of £80,000.

The Solution with a Deed of Variation:

Ann decides to place the £300,000 legacy into a Discretionary Trust via a Deed of Variation, with herself and family listed as the potential beneficiaries of that trust. This means the family can still benefit from the legacy if they wish whilst they are alive.

The Key Benefit:

Upon Ann and Reginald's death, the value held in the Discretionary Trust is not part of their estate for IHT purposes, so the £80,000 charge shown above would not arise on their death. In practice, however, a discretionary trust has its own tax treatment — including possible ten-yearly and exit charges — so the overall saving in a real case is usually smaller than a simple calculation suggests.

Important Considerations

Deeds of Variation are powerful planning tools, but they:

• Must be completed within 2 years of death
• Have specific legal and tax requirements
• Require coordination with the deceased's estate administration
• May have other implications depending on individual circumstances
• Involve trusts that carry their own tax treatment, including possible ten-yearly and exit charges

This is why professional advice is essential.

Getting Started

If you feel that having a discussion about Deeds of Variation or any other Inheritance Tax planning would be beneficial to you, please don't hesitate to contact us for an initial consultation. We'll be happy to discuss your personal situation in further detail.

We work with families and executors across Norfolk to help with estate planning and post-death planning options.

Figures quoted are correct as at September 2026. Tax rules, allowances and thresholds can change.

Important: This article is for information only and does not constitute legal or tax advice. Deeds of Variation are complex legal documents with significant tax implications. They must be completed within 2 years of death and have specific requirements. The rules can also interact with other aspects of estate planning in ways that affect multiple beneficiaries.

We strongly recommend working with a qualified solicitor and tax adviser to consider whether a Deed of Variation is appropriate for your situation and to ensure it is correctly implemented. Each situation is unique and requires individual assessment.

For a confidential discussion about estate planning or Deeds of Variation, please get in touch.