What is a Deed of Variation?

If a beneficiary decides to refuse their inheritance, they have the option to do a Deed of Variation, but what is it and why might you want to use it? Read more in this article. 

When refusing an inheritance, there are two options for how to disclaim a gift:  

• Disclaiming their gift - The primary way for a beneficiary to refuse their inheritance is by disclaiming the gift. You can read more about here.
• A Deed of Variation - The second option is to transfer the gift to another beneficiary through a Deed of Variation. A Deed of Variation is a legal document that alters the terms of a deceased person's Will or intestacy.  

What can a beneficiary do under the Deed of Variation? 

A person (an original beneficiary) can: 

• Vary their interest even if a benefit has been obtained under the original gift
• Vary part of a gift
• Direct to whom the gift is to go

The original beneficiary will obtain Inheritance Tax (IHT) and Capital Gains Tax benefits (not Income Tax benefits) as HMRC treats the gift as having been made by the deceased and not by the original beneficiary if it was given within two years of the date of death. 

Reasons why you would do a Deed of Variation 

• Re-direct interest for the beneficiary’s personal IHT reasons​
• To incorporate a gift to a person missing from the Will or not given adequate financial provision​
• Sever joint tenancy on a property
• To resolve any uncertainty or defect in the Will
• Vary the laws of intestacy​

So, the estate does not pay/reduce IHT​: 

• Incorporate gifts to charity
• Or redirect all to the exempt beneficiary, i.e., spouse

Rules of the Deed of Variation 

A Deed of Variation, also referred to as an Instrument of Variation, can be a great tool for amending a Will or intestacy, but there are rules you need to follow. 

• It must be made within two years from the date of death
• It must be in writing and signed
• The original beneficiary (person given all or part of their inheritance) must be:​
  • Over the age of 18
  • Mentally capable
  • If the beneficiary is a minor, they cannot vary without consent from the court
• A Deed of Variation is irrevocable, and each asset can only be varied once
• It can be open to challenge – deliberate deprivation of assets
• If the Variation includes a new legacy or increased legacy to a charity, they must be notified in writing. HMRC will want a copy of the letter sent to them if it is reducing the IHT. They do not need to sign the Deed of Variation.
• New beneficiaries don’t have to be a party to the Deed of Variation, but we do try to do it as best practice. 

A Deed of Variation can be done pre-Grant, but best practice is to do it after the Grant has been issued, if not done to change tax position, or if it is close to the two-year deadline.​ If it does change the IHT position, the Personal Representative (Executor or Administrator) must be a party to the Deed of Variation.