Can I Avoid Inheritance Tax with a Deed of Variation? A Powerful Tool for Estate Planning

When a loved one passes away, it’s not always possible to anticipate every financial outcome - particularly when it comes to Inheritance Tax (IHT).

But did you know there’s a legal way to redirect an inheritance after death to potentially reduce the tax bill?

It’s called a Deed of Variation, and at Belgravia Capital Wealth Management, we often help families use it to reallocate assets in a tax-efficient manner.

But how does it work — and can it really help you avoid inheritance tax?

In this article, we explain what a deed of variation is, how it impacts IHT, and when it could be the right move for you or your family.

What Is a Deed of Variation?

A Deed of Variation is a legal document that allows a beneficiary of a will (or intestacy) to change how the deceased’s estate is distributed — with mutual agreement from all affected beneficiaries.

In essence, you can:

• Give up part (or all) of your inheritance

• Redirect it to someone else (such as a child, sibling, or charity)

• Potentially reduce the inheritance tax liability of the estate

A deed of variation must be made within 2 years of the person’s death and must meet certain criteria to be valid for tax purposes.

Why Use a Deed of Variation?

Beneficiaries might choose to vary a will for several reasons:

• Reduce inheritance tax

• Provide for a family member not originally included

• Redirect funds to a grandchild or child with greater need

• Make a charitable donation

• Preserve wealth for future generations

Crucially, HMRC allows such variations to be treated as if they were made by the deceased - meaning no inheritance tax or capital gains tax is triggered by the change, provided the correct conditions are met.

How a Deed of Variation Can Reduce Inheritance Tax

Inheritance Tax is charged on estates above the nil-rate band (currently £325,000 per person, or £500,000 if the residence nil-rate band applies).

A deed of variation can help reduce or eliminate IHT in the following ways:

• Redirecting Inheritance to a Spouse or Civil Partner

• Gifting to Charity

• Passing Assets to Younger Generations

• Simplifying Future IHT Exposure

What Are the Conditions for a Valid Deed of Variation?

To qualify for IHT or CGT treatment, the deed must:

• Be made within 2 years of the death

• Include a statement that the variation is made under section 142 of the Inheritance Tax Act 1984

• Be signed by all affected beneficiaries

• Be in writing

• Be sent to HMRC only if the variation affects the amount of IHT due

  
  

Who Needs to Be Involved in a Deed of Variation?

• The person giving up their inheritance

• The person(s) receiving the revised inheritance

• In some cases, executors or trustees may also need to consent, especially if trusts are involved

Importantly, minors and those lacking capacity cannot consent, so the court would need to approve any changes affecting them.

An example of a Deed of Variation in Action

Sarah inherits £300,000 from her father’s estate, which already exceeds the IHT threshold.

She’s financially secure and wants to help her own children.

She creates a deed of variation to redirect £150,000 to her two children.

Because this is treated as if her father made the gift:

• There is no additional IHT

• It does not count as a gift from Sarah’s estate

• Her own IHT exposure is reduced by lowering the value of her estate

  
  

Common Misconceptions about Deeds of Variation

“You can rewrite the whole will.”

Not quite - only the parts that affect you as a beneficiary.

“This is tax evasion.”

False. Deeds of variation are legal, recognised by HMRC, and often encouraged for good planning.

“Only the wealthy need them.”

Not true. Families of all sizes and means can benefit.

Limitations to Keep in Mind

• Variations can’t be made unilaterally — all affected beneficiaries must agree

  
  

• Variations don’t affect settled lifetime trusts or gifts made before death

  
  

• Court involvement may be required if minors are involved

  
  

• Once signed and executed, the decision is final

How Belgravia Capital Wealth Management Can Help with a Deed of Variation

Our team supports clients in:

• Identifying opportunities to reduce IHT via variation

• Coordinating with solicitors to draft valid deeds

• Modelling the financial impact on your estate and your beneficiaries

• Integrating deeds of variation into long-term estate planning

Conclusion: Can You Avoid Inheritance Tax with a Deed of Variation?

Yes - in many cases, a deed of variation can reduce or eliminate inheritance tax, and provide flexibility when a will no longer meets the family’s needs.

The key is to act within two years of death and get expert guidance to ensure it’s done correctly.

Need advice on how a deed of variation could benefit your family?

Contact us at contact@belgraviacapital.co.uk to schedule a confidential consultation with one of our estate planning specialists.