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What is a deed of variation?

Beneficiaries of a deceased estate may vary the disposition of the estate by agreement. They may decide to surrender to or exchange their entitlement with other beneficiaries, or they may decide to benefit someone who was not originally included. All the beneficiaries affected by the changes must be aged 18 or more and of sound mind. If the proposals would affect minor or unborn children then a court order approving the changes is required.

Without special tax provisions, a post-death re-arrangement would not affect the tax position on death. It would be a lifetime gift by the beneficiary who is surrendering part or all of his entitlement. However, there are provisions for both inheritance tax and capital gains tax (CGT) which allow the beneficiary’s gift to be taxed as though it had been made by the deceased.

Such a variation or re-arrangement is popularly referred to as a ‘deed of variation’ because the terms of the agreement are usually set out in a formal deed. There is no general