What is a Deed of Variation?

A Deed of Variation can be used by the beneficiaries to change entitlements under a Will or Intestacy (most commonly for tax saving purposes) – it allows a beneficiary to re-direct his or her gift for the benefit of another individual (avoiding the same money being taxed twice). This is to be completed within two years of the date of death.

Reasons for a Deed of Variation

There are many reasons why beneficiaries may wish to vary or redirect inheritances.

The main reasons are:

  • To save Inheritance Tax
  • To alter the interests under a Will
  • To provide for someone who has been omitted from a will or who has not been given adequate financial provision in a will
  • To resolve any uncertainty or amend a defect in a Will

The main effect of a Deed of Variation is that the alteration made by the deed is treated as having been made by the deceased, and not by the beneficiary who has given up his entitlement under the Will.

A variation cannot be done without the consent of everyone likely to be affected by it or if the beneficiary is a minor (as they are not able to sign a deed). This would need consent of the court before it could be done, and such consent is not readily given.

Why might a beneficiary wish to vary their share?

As an example, a gift of £100,000 after inheritance tax would see the beneficiary receiving £60,000. If that beneficiary passes away with an estate over the £325,000 nil rate band, the £60,000 inheritance would now be subject to a further 40% inheritance tax leaving just £36,000.

By varying the original Will, a beneficiary may renounce his or her share to an individual of their choice (children, charity, etc) and save the additional taxation that would likely occur.

When can I do a Deed of Variation?

It can be done at any time (before or after the Grant of Probate is issued), but if it is implemented to save Inheritance Tax or Capital Gains Tax, it must fulfil the following requirements:

  • Completed within two years of the date of death
  • The right tax declarations must be included in the deed
  • There must be no inducements (such as a cash payment) given to any beneficiary to enter into the deed
  • The destination of an asset cannot be varied more than once in different deeds, although more than one deed is permissible if they deal with different assets

A Deed of Variation can be done even if the administration of the estate has been completed and the deceased’s assets have been distributed.

We provide various services to help with obtaining a Deed of Variation as well as general estate administration. For more information or to speak to our Probate specialist please call 01722 410009.

By accepting free advice you are under no obligation to use our services.

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