What is a deed of variation?
A deed of variation is a document written by the beneficiaries of a will. Sometimes known as an instrument of variation, it lets them change how the estate is distributed.
Perhaps you want to pass some of the inheritance to someone who was not included without contesting the will. Maybe you want to change who gets what, or how much they receive. To do this, you need to make a variation. Remember that you only have two years after the death to complete these changes.
When would you use a deed of variation?
There are four main reasons why you may need to use a deed of variation. According to the government, these are to:
- Reduce inheritance tax (IHT) or Capital Gains Tax
- Provide for someone who did not inherit
- Transfer assets to a trust
- Remove doubt or uncertainty in the will
Fairness and recognition are often why changes are made to a will after someone has passed away. In these cases, a deed of variation can help put right a perceived wrong. It may also help protect future relationships and resolve past disagreements that no longer matter.
Does a deed of variation need to be registered?
A deed of variation does not need to be officially registered. The beneficiaries of the will, those affected by the changes, and any new inheritors all need to sign the document.
After that, the executor of the will, the person managing the deceased’s estate, must agree to the changes. At that point, the variation becomes legally binding.
The only exception is where the variation increases the amount of inheritance tax due. In that case, the will’s executor or administrator will need to sign the deed of variation, and a copy should also be sent to HM Revenue & Customs.
Deed of variation and inheritance tax
Inheritance tax is charged at 40% on the value of an estate above the £325,000 threshold. On larger estates, that can amount to a significant bill. If the estate is worth less than this, inheritance tax is not usually due.
The tax is also not due if the entire estate is passed to a spouse, civil partner, charity, or community organisation. The inheritance tax threshold can also increase to £500,000 if the estate is left to children or grandchildren in certain circumstances.
For example, if the person who wrote the will did not leave everything to their partner and the estate is valued at £500,000, inheritance tax could be charged on £175,000 of that estate. At 40%, this would mean a tax bill of £70,000.
Using a deed of variation, it may be possible to change how the estate is distributed and reduce the inheritance tax payable.
If a variation increases the amount of inheritance tax due, you must send a copy of the deed to HMRC within six months. This may apply, for example, if part of the estate originally intended for the deceased’s partner is redirected elsewhere. The will’s executors or administrators must also sign the deed.
Deed of variation and Capital Gains Tax
Capital Gains Tax is charged on profit made from certain assets, including:
- Assets valued at more than £6,000
- Property that you do not live in
- Certain types of shares
- Business assets
You have an annual tax-free allowance of up to £12,300. The amount of Capital Gains Tax you pay depends on your tax bracket.
For example, if the deceased bought a house for £200,000 and rented it out, and you later sell it for £300,000, the profit of £100,000 may be taxable.
As with inheritance tax, a deed of variation can sometimes reduce the amount payable. Capital Gains Tax is not usually due on gifts to a spouse, civil partner, or charity. By making this kind of change to a will, it may be possible to keep more of the estate intact.
Deed of variation and intestacy
You do not always need a will to use a deed of variation. If someone has died without leaving a will, this is known as dying intestate.
When this happens, the estate is generally passed to the surviving spouse or civil partner. Depending on the size of the estate, the deceased’s children may also inherit.
A deed of variation can be used to change this. It can allow other relatives, friends, or charitable organisations to benefit from the estate.
Deed of variation after probate
You may have concerns about completing a deed of variation after probate has been granted. By this stage, the legal process surrounding the estate is often nearing an end.
However, a deed of variation can be completed either before or after obtaining a grant of probate. As long as it is completed within two years of the person’s death, it can still be valid.
Deed of variation timescale
The timescale for completing a deed of variation is usually around a month, provided all beneficiaries agree to the document and sign it. The quicker everyone signs, the quicker the process is likely to be completed.
However, it can take longer in some circumstances. If a beneficiary is under 18 or lacks mental capacity, they cannot legally sign a deed of variation. In that situation, you may need to apply to the court for approval.
How much does a deed of variation cost in the UK?
Because a formal deed of variation can be set out in a letter, it may cost nothing if you handle it yourself. However, using a solicitor is often advisable, and you will need to factor in legal fees if you choose that route.
Who pays for a deed of variation?
A deed of variation is usually paid for by the beneficiary making the change. As the person redirecting their share of the estate, they will normally be expected to cover any legal costs.
To compare solicitor costs, fill in our form to find the right legal expert for your deed of variation.
Do you need a solicitor for a deed of variation?
You do not technically need a solicitor to prepare a deed of variation. However, it is a good idea to discuss your circumstances with a solicitor, who can draft the document properly.
This matters because if you submit a valid deed of variation and later want to make another change to the same assets, you may not receive the same tax treatment.
The initial deed of variation is treated as if it were part of the deceased’s will. A later amended or new deed relating to the same assets may instead be treated as a gift made by you. A solicitor can help you get it right the first time.
Compare the costs of solicitors near you using our quick quote form.
