Most people are under the impression that their last Will and Testament cannot be changed or varied and that beneficiaries have to accept the distribution of their estate as specified in the Will. However, there may be very good reasons why your family, or indeed wider beneficiaries, may wish to vary their entitlement under the terms of your Will.

The Myth: My Will Cannot be Varied

This statement is incorrect. A beneficiary of your estate is allowed to vary their entitlement under the terms of your Will. They can either disclaim the gift in its entirety, or they can direct that their gift is redirected to another person (usually children of the beneficiary) although a beneficiary can redirect their gift to anyone.

The variation can be achieved by signing what is commonly called a Deed of Variation. The correct name is a Deed of Family Arrangement. This is signed by the executors, and it is a document that formally records that the gift under the Will is redirected to another beneficiary.

The Second Myth: Beneficiaries can vary their entitlement at any time.

Whilst technically this is correct, for the Deed of Variation to be effective for Inheritance Tax and Capital Gains Tax purposes (see the example below), the Deed of Variation must be completed within two years of the date of death of the deceased. For example, if the deceased died on 1 January 2025, the family must complete the Deed of Variation by 31 December 2026.

The Third Myth – There is no benefit in varying a deceased’s estate.

This is incorrect. There might be very good reasons for varying the distribution of an estate. For example, if you inherit an estate the value of your inheritance is added to the value of your estate and eventually, it might be subject to Inheritance Tax on your death. If Inheritance Tax was paid prior to you receiving the gift, tax will be paid again on the same monies on your death. If you are in the fortunate position of not actually needing the money or the gift (either in its entirety or in part), it makes commercial sense, from an Inheritance Tax point of view, to redirect that gift to the next generation. Here is an example of how a Deed of Variation can benefit a family.

Mr Smith passed away leaving an estate (after the payment of Inheritance Tax) in the sum of £800,000. Under the terms of his will he left his estate equally to his four children. Two of them were in the position on not needing the money and decided to vary their quarter share and redirect it to their children. Provided they completed the Deed of Variation within two years of the date of death, for Inheritance Tax and Capital Gains Tax purposes, it is written back as if the deceased left the gift to his grandchildren. It is not deemed to be a gift by the beneficiaries.

Had the two children who did not need their inheritance received the gift and later decided to make a gift to their children, they will have started a seven-year clock before that gift falls out of their estate. If they were to pass away within seven years of the date of making that gift, the gift is brought back into their value of their estate for the calculation of Inheritance Tax purposes and potentially it will be liable to be taxed at a rate of 40% (making the sum of £80,000 tax payable on the sum of £200,000). The gift remains in the hands of their children and is not returned to the estate. The gift is only brought back into the estate the assessment of the parent’s Inheritance Tax liability.

The advantage of entering into a Deed of Variation is that the gift is deemed to have been made by the grandfather under the terms of his Will. As such the seven-year clock does not apply. The sum of £200,000 never forms part of the original beneficiary’s estate thereby mitigating the tax payment of £80,000.

For more information about the benefits of a Deed of Variation, please contact a member of our Child and Child’s Private Wealth Department: Rhea Rughani, Colin Glass or Vincenzo Mazzone.

The information contained in this article is general guidance only. The application and impact of laws can vary widely depending on the specific facts involved. The information in this article is provided with the understanding that the authors and presenters are not giving legal, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional legal, tax or other competent advisers. Before making any decision or taking any action, you should consult a Child & Child professional