Deed of Variation

A Deed of Variation is a deed entered into by a beneficiary of a Will/and or the executors or under the intestacy provisions varying their entitlement under the Will/intestacy. To be effective for tax purposes, the deed needs to be made within two years of the date of death of the person making the Will and contain elections for inheritance and capital gains tax purposes.

If a Deed of Variation is prepared correctly HMRC will regard anything gifted as coming from the person who has died and not from the person actually undertaking the gifting. This is efficient tax planning on the part of the gifting party and it does not create a 7-year gift clock and thus preserves their NRB in full which would otherwise not be the case if they accepted their inheritance and then made a potentially exempt transfer.

For example, if George dies leaving his share portfolio to his son Fred, Fred may decide that he would like his daughter Cat to receive the gift instead. If Fred executes a Deed of Variation within two years of George’s death substituting the gift of the shares to him with a gift to Cat instead, then there should be no capital gains tax on the gift (if the shares have increased in value). For inheritance tax purposes, the gift will be treated as being made by George. This means that there will be no tax implications for Fred in making the gift even if he were to die shortly afterwards.