The short answer: a deed of variation is a written document in which a beneficiary gives up some or all of an inheritance so that it passes to someone else instead. It can change how an estate is shared under a will, or under the intestacy rules if there was no will. If it is signed within two years of the death and includes the right statement, it is treated for Inheritance Tax and Capital Gains Tax as if the person who died had made the change.
Deeds of variation are often used to share an estate more fairly, to pass an inheritance down a generation, or to reduce tax. Where the estate includes a house or flat, the variation also affects who ends up on the title. This guide explains how deeds of variation work in Scotland, when they are useful and what to watch out for.
What can a deed of variation do?
A deed of variation lets beneficiaries redirect what they would otherwise receive. Common examples include:
- Including someone the will left out. A mother leaves her estate to three of her four children. The three agree that their sibling should have an equal share, and each gives up part of their inheritance.
- Recognising a carer. A father leaves everything to his two children. They agree that a friend who cared for him in his final year should receive a gift from the estate.
- Skipping a generation. A son who is financially secure redirects his inheritance to his own children, so it is not added to his estate for Inheritance Tax.
- Redirecting a house. A surviving spouse who has inherited the family home redirects it, or a share of it, to the children.
- Giving to charity. Beneficiaries redirect part of the estate to a charity, which can reduce the Inheritance Tax payable.
The two-year rule and the tax effect
A deed of variation does not have to be made within any time limit to be valid in Scots law. But for the variation to be treated for Inheritance Tax and Capital Gains Tax as if the person who died had made it, it must:
- be in writing and made within two years of the death
- be signed by every beneficiary who is giving something up
- include a statement that the beneficiaries intend the variation to be treated as made by the person who died
- be signed by the executors as well, if it increases the Inheritance Tax payable
- not be made in return for any payment or other benefit, apart from another variation in the same estate
If these conditions are met, the redirected inheritance is not treated as a gift by the beneficiary. That matters because a gift can be counted in the beneficiary's own estate for Inheritance Tax if they die within seven years, and a gift of property can trigger Capital Gains Tax.
How a deed of variation can reduce Inheritance Tax
Inheritance Tax is usually charged at 40% on the part of an estate above the available allowances. The standard nil rate band is £325,000, and the residence nil rate band of up to £175,000 is available when a home passes to direct descendants, such as children or grandchildren. Both allowances are currently frozen until April 2031.
A deed of variation can help in several ways:
- Charity. If at least 10% of the net estate goes to charity, the rate of Inheritance Tax on the rest of the estate can fall from 40% to 36%.
- The residence nil rate band. Redirecting a home to children or grandchildren can allow the estate to claim the residence nil rate band where it would otherwise be lost.
- Your own estate. Redirecting an inheritance you do not need to your children means it is not added to your estate, without waiting seven years.
Tax rules change and every estate is different, so the tax effect should always be checked with the estate's tax adviser before a variation is signed.
Scots law points to know
Scottish succession law differs from the law in England and Wales in ways that often matter:
- Legal rights. A surviving spouse, civil partner or children can claim legal rights from the moveable estate, such as money and shares, but not from heritable property such as a house. A child who wants a share of the family home can only receive it under the will, the intestacy rules or a variation.
- Intestacy. If there is no will, the Succession (Scotland) Act 1964 decides who inherits, including the surviving spouse's prior rights to the home. A deed of variation can be used to change the result, as with a will.
- Survivorship destinations. If the title says a property is owned "by A and B and the survivor", a share can pass automatically to the survivor, outside the will. That changes who needs to sign the variation, and whether it can achieve what the family wants.
- Executors and confirmation. In Scotland, executors obtain confirmation, the equivalent of probate, before they can deal with the estate. A variation can be signed before or after confirmation is granted.
Deeds of variation and property
When the estate includes a house or flat, the deed of variation decides who should receive it, but it does not transfer the property on its own. The executor then transfers it to the new beneficiary, usually by a disposition registered in the Land Register of Scotland. A docket on the confirmation is sometimes used instead, but it cannot be registered, so the beneficiary is not shown as the owner until a later deed is registered.
A variation made within two years of the death is normally exempt from Land and Buildings Transaction Tax, as long as the new beneficiary does not pay anything for the property, which includes taking on a mortgage. If the property is to be sold rather than kept, it may be simpler for the executors to sell it and vary the proceeds.
Our deed of variation service explains how we handle the property side, from checking the title to registering the new owner. If the new owner wants to sell, our sale conveyancing service can take it from there, and our transfer of title service covers transfers between family members outside an estate.
Other meanings of "deed of variation"
In Scotland, the phrase is sometimes also used for:
- Varying a lease, where a landlord and tenant agree to change the terms, usually called a minute of variation
- Varying a title condition, where owners agree to change a real burden, or apply to the Lands Tribunal for Scotland; our guide to real burdens and restrictive covenants explains more
Do you need a deed of variation?
A deed of variation can be a valuable way to share an estate fairly and reduce tax, but it is a legal document with lasting consequences, and once signed it cannot usually be undone. Take advice before you agree anything, particularly where a house is involved or any beneficiary is a child.
Our Scottish property solicitors work with executors and tax advisers to make sure an inherited property ends up in the right names. Call us on 0141 471 9166 or send us an enquiry.
Frequently asked questions
What is a deed of variation?
A deed of variation is a written document in which a beneficiary of an estate gives up some or all of their inheritance, so it passes to someone else. It can change how an estate is shared under a will, or under the intestacy rules where there was no will. If it meets the conditions, it can be treated for tax as if the person who died had made the change.
How long do you have to make a deed of variation?
For the variation to be treated for Inheritance Tax and Capital Gains Tax as if the person who died had made it, it must be signed within two years of the death and include a statement that the beneficiaries intend those rules to apply. A variation can be made later, but it is then treated as a gift by the beneficiary.
Who has to sign a deed of variation?
Every beneficiary who is giving something up must sign. The executors must also sign if the variation means more Inheritance Tax is payable. If a beneficiary who would lose out is under 16 or does not have capacity, the variation is much harder and may need the court's approval.
Can a deed of variation be used for a house in Scotland?
Yes. An inherited house or flat can be redirected to a different beneficiary. The executor then transfers it to the new owner, usually by a disposition registered in the Land Register of Scotland. A variation made within two years without any payment is normally exempt from Land and Buildings Transaction Tax.
Does a deed of variation need to be registered?
The variation itself is sent to the executors, and a copy is sent to HMRC if it increases the Inheritance Tax payable. It is not registered in the Land Register. What is registered is the deed transferring the property to the new beneficiary, usually a disposition from the executor.
