Deed of Variation Tax Calculator
Calculate IHT and CGT savings from redirecting an inheritance. Updated for 2026 IHT rates.
Last updated: March 2026
UK Deed of Variation Calculator 2026
Model IHT saving when you redirect an inheritance using a deed of variation
IHT Rates & Nil Rate Bands 2026
| Threshold / Rate | Amount |
|---|---|
| Nil Rate Band (NRB) | £325,000 |
| Transferable NRB (deceased spouse) | Up to £325,000 |
| Residence NRB (RNRB) | £175,000 |
| IHT Rate (standard) | 40% |
| IHT Rate (10%+ charity gift) | 36% |
Expert Guide: Deeds of Variation and Inheritance Tax 2026
1. The 2-Year Window — The Critical Deadline
A deed of variation must be executed within two years of the date of death to qualify for the S142 IHTA 1984 / S62 TCGA 1992 treatment (backdating to the deceased's estate). This is an absolute deadline — there is no HMRC discretion to extend it. If you miss the window, the redirection is treated as a post-death gift by you (the original beneficiary), which: (1) Does not reduce the deceased's IHT, and (2) Is a potentially exempt transfer (PET) from you — potentially subject to IHT if you die within 7 years.
The clock starts from the date of death, not from probate or from when assets are distributed. Solicitors advising on estates should flag the deed of variation possibility as early as possible after death. The two-year period includes time taken for probate — you can execute the deed before probate is granted if the assets and beneficiaries are identifiable. Watch out for: complex estates with ongoing HMRC valuations, business property relief disputes, or foreign assets that delay the process.
2. What Can and Cannot Be Varied
Can be varied: Specific bequests in a will, residuary estate shares, intestacy entitlements (shares under the statutory rules of intestacy), gifts of property, cash, shares, and personal possessions. Any asset that passes under the will or intestacy rules can be redirected. You can also vary the deceased's own lifetime gifts that are chargeable to IHT (e.g. failed PETs within 7 years) if the gift-recipient agrees — though this is unusual.
Cannot be varied: (1) Jointly-owned property held as joint tenants — this passes by survivorship automatically outside the estate. To vary it, the joint tenancy would need to have been severed into a tenancy in common before death. (2) Pension death benefits nominated to a named beneficiary — these are outside the estate and not part of the deceased's will. (3) Life insurance in trust — proceeds paid directly to trust beneficiaries. (4) Gifts made before death — once made, these are fixed. However, a deed of variation can redirect assets received on death to a trust, which then holds them differently.
3. Charity Variations — The 36% Rate and Baseline Calculation
One of the most powerful uses of a deed of variation is redirecting inheritance to charity, which can trigger the reduced 36% IHT rate (s7 and Sch 1A IHTA 1984) on the entire taxable estate. The 36% rate applies when 10% or more of the "baseline amount" is left to charity. The baseline amount is: (net estate − nil rate band − RNRB − charity gift). The calculation is circular but HMRC provides worked examples in their manual.
Example: Estate £1,000,000. NRB £325,000. Taxable estate £675,000. Without charity: IHT at 40% = £270,000. If residuary beneficiaries redirect £70,000 to charity via deed of variation: charity gift £70,000 ÷ baseline £605,000 = 11.6% (exceeds 10%). IHT on remaining £605,000 at 36% = £217,800. IHT saving vs no-charity: £52,200. Net position of non-charity beneficiaries: they give up £70,000 but the estate saves £52,200 in IHT — net "cost" of the charity gift is only £17,800. The family effectively receives £70,000 in charitable goodwill for a real cost of under £18,000.
4. Skipping a Generation — Gifts to Grandchildren
If assets pass to adult children who already have taxable estates of their own, those assets will be taxed again when the children die. Redirecting inheritance from children to grandchildren (or into a trust for grandchildren) effectively "skips" one IHT charge, saving up to 40% in the next generation. This is one of the most common uses of deeds of variation.
Example: Maria inherits £300,000 from her father. Maria's own estate is already £1,000,000+ and she does not need the money. Without variation: the £300,000 joins her estate, potentially creating £120,000 additional IHT when she dies. With deed of variation: Maria redirects £300,000 to her children via the deed. This falls out of the grandfather's estate (no IHT), goes directly to the grandchildren (no PET, no 7-year rule), and never enters Maria's estate. Total IHT saving: up to £120,000 + the grandfather's IHT saving on £300,000. Note: if Maria has used her annual gift exemption, this avoids the 7-year PET clock entirely — a key advantage over simply gifting after inheritance.
5. CGT Implications — S62 Election and the Death Uplift
When someone dies, assets in their estate receive a "base cost uplift" — the inheritor's CGT base cost is reset to the market value at the date of death. This wipes out all pre-death gains. When a deed of variation redirects an asset, S62 TCGA 1992 treats the variation as if the deceased had made it — so the CGT base cost for the new beneficiary is still the date-of-death value, not the date-of-variation value. This means even if the asset has increased in value between death and the variation (up to 2 years later), no CGT is charged on that gain.
Practical benefit: if shares in a family company are worth £500,000 at death and £700,000 two years later when the deed is executed, the £200,000 gain is not subject to CGT — the new beneficiary takes the shares at £700,000 base cost (or arguably the date-of-death £500,000 value — tax professionals typically report the probate value). Important: the S62 election must be explicitly included in the deed of variation — it is not automatic. A deed without the election is valid legally but does not receive the backdating treatment for CGT. Both the variation and the CGT election can be made in the same document.
6. Practical Requirements — What the Deed Must Include
A deed of variation is a formal legal document. To qualify for the IHT and CGT backdating: (1) It must be in writing. (2) It must be made within 2 years of death. (3) It must clearly identify the variation (which assets, redirected to whom). (4) It must contain the S142(1) IHTA 1984 election (for IHT backdating) — typically worded "The parties hereto intend that the variations made herein shall take effect as if made by [the Deceased]". (5) It must contain the S62(6) TCGA 1992 election (for CGT backdating) — similarly worded. (6) It must be signed by all beneficiaries whose interests are affected.
No consideration (payment) can be given for making the variation — if a beneficiary is "paid" to redirect their inheritance, the deed does not qualify for IHTA/TCGA treatment. All parties should receive independent legal advice. The deed does not need to be registered anywhere but should be provided to the estate's executors and HMRC. Executors may need to include it with IHT forms if it affects the estate's tax position. Legal costs: A deed of variation typically costs £500–£2,000 in legal fees depending on complexity — a fraction of the potential IHT saving.
7. Using a Deed of Variation to Create a Trust
Rather than redirecting inheritance to an individual outright, a deed of variation can redirect assets into a trust. This is particularly useful where: (1) The new beneficiaries include minors (who cannot manage assets themselves). (2) The family wants to maintain flexibility over how assets are eventually distributed. (3) There is a concern that an adult beneficiary might lose the assets (divorce, bankruptcy, care fees). Trusts created by deed of variation are treated as if set up by the deceased — meaning the usual 10-year anniversary charges and exit charges that apply to "relevant property trusts" begin from the date of death, not the date of the deed.
A discretionary trust created by deed of variation can also protect assets from means-tested care fee assessments, as trust assets do not belong absolutely to any beneficiary. However, HMRC scrutinises arrangements where the original beneficiary also benefits from the trust — if you redirect inheritance into a trust from which you (the original beneficiary) can also benefit, HMRC may argue the variation is ineffective for IHT. The safest approach: the original beneficiary should be excluded from benefiting from the trust they redirect assets into. This requires careful drafting by a specialist private client solicitor.
Expert Reviewed — This calculator applies 2026 IHT rates (NRB £325,000, rate 40%/36%) and IHTA 1984 S142 / TCGA 1992 S62 rules. Last verified: March 2026.
Worked Examples: Deed of Variation
Example 1: Redirecting to Children to Skip a Generation
James inherits £200,000. His own estate is already £800,000. NRB available: £325,000. Without variation: £200,000 joins his estate, potentially £80,000 IHT when he dies. With deed of variation to his adult children: £200,000 falls out of the grandfather's estate (saves £80,000 IHT at 40%), never enters James's estate (saves £80,000 future IHT), and goes directly to grandchildren now. Total IHT saving across two deaths: potentially £160,000.
Example 2: Charity Variation for 36% Rate
Estate £600,000. NRB £325,000. Taxable estate £275,000. IHT at 40% = £110,000. Beneficiaries redirect £30,000 (11% of baseline) to charity via deed. New taxable estate: £245,000 at 36% = £88,200. IHT saving: £21,800. Cost to family: £30,000 donation for £21,800 IHT saving — net cost of the £30,000 charity gift: £8,200. Net saving vs no action: £21,800.
Sources & Methodology
- IHTA 1984 Section 142 — Variation of dispositions taking effect on death
- TCGA 1992 Section 62 — Death: general provisions
- HMRC Inheritance Tax Manual
Disclaimer: This calculator provides estimates only. IHT and CGT implications of deeds of variation are complex and fact-specific. The RNRB calculation depends on the assets in the estate. Legal advice from a specialist private client solicitor is essential before executing a deed of variation.