How inheritance tax trick is helping families save ‘six-figure sums’
Happy to skip a generation to save thousands on inheritance tax? A deed of variation could be the estate planning tool you need.


A lesser-known inheritance tax loophole is allowing families to save significantly on their IHT bills – and financial advisers say they are using it with more clients than ever since chancellor Rachel Reeves’s inheritance tax crackdown.
Financial advisers have reported a surge in queries about estate planning amid concerns of possible further changes to the inheritance tax (IHT) regime in the forthcoming Budget – where reports suggest Reeves is looking at tightening the rules on lifetime gifting.
A recent Freedom of Information request by wealth manager Rathbones revealed nearly one in 10 estates liable for inheritance tax paid over £500,000 in the most recent year (2021/22) for which data is available.
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If the trend seen over the three years to April 2022 continues, Rathbones estimates 3,524 estates will face IHT bills of more than £500,000 by the end of the 2025/26 tax year, based on an average annual increase in tax take of 8.74%.
New inheritance tax rules on pensions – where unused retirement pots are included in inheritance tax calculations – are due to impact families from April 2027, as the chancellor strives to raise more money for essential public services.
Against this backdrop, while traditional strategies such as lifetime gifting to avoid inheritance tax and the use of trusts remain common, there is growing interest in lesser-known opportunities to reduce inheritance tax bills. One of these is the ‘deed of variation’.
What is a deed of variation?
A deed of variation allows beneficiaries to redirect some or all of an inheritance within two years of death so it passes to others (for example, children or into a trust), potentially reducing the estate’s IHT liability.
Simon Bashorun, head of advice at Rathbones Private Office, said: “We are seeing rising interest in how a deed of variation can be used to redirect an expected inheritance.
“The driver is often to ensure assets are passed on in a way that aligns with the family’s long term financial goals including potential IHT efficiencies – for example, by skipping a generation or placing the inheritance into a trust.
“This not only provides protection from IHT and greater control over the assets but can also give flexibility for the original beneficiary to access the funds if required.”
How does a deed of variation work?
A deed of variation allows beneficiaries to alter the terms of a will and how an estate is distributed, provided it’s done within two years of the deceased’s death. HMRC treats any redirected gift as if it came directly from the deceased, which could help mitigate inheritance tax liabilities.
Rebecca Williams, divisional lead of financial planning at Rathbones, gave an example: “Say a child inherits more than they need. They might use a deed of variation to pass assets directly to their own children. This skips a generation and can reduce future IHT bills.”
Changing a beneficiary from a child to a grandchild doesn’t result in immediate inheritance tax savings, but it can potentially save 40% on the child’s eventual death by skipping a generation – meaning IHT is paid once, just by the grandchild, rather than twice.
Another option is to leave money to charity, which not only lowers the taxable value of the estate but can also reduce the IHT rate from 40% to 36%, provided at least 10% of the estate is donated.
A deed of variation can also be used to place assets into a trust. “This is particularly useful when children or grandchildren are too young to inherit, or when a beneficiary wishes to keep assets outside their personal estate for tax planning or asset protection purposes,” said Williams.
It can also be used to include a child or grandchild who was not named in the will – perhaps because they were born after it was written – or to benefit a stepchild.
Crucially, however, all affected beneficiaries must agree to the changes under the deed of variation. “The key point is that unanimous agreement is required, which can be challenging when money is involved,” said Williams, who cautioned professional advice is essential to ensure the process is carried out correctly.
As a result, a deed of variation cannot be used if any beneficiary is under 18, as they are not legally able to consent to the variation. However, if all beneficiaries are adults and in agreement, a deed of variation can be a powerful tool to skip a generation or to include individuals not named in the original will.
How much inheritance tax can I save using a deed of variation?
Scott Gallacher, director at financial advice firm Rowley Turton, said he is now discussing deeds of variation “with almost every client we see, as the government’s new IHT raid on pensions is dramatically increasing the number of families facing inheritance tax on their estates”.
"In many cases, this approach is creating six-figure IHT savings, as well as providing valuable protection against divorce settlements and long-term care fees for future generations,” he said.
He called on families to begin discussing deeds of variation straight away. But he said it's no easy task, with some parents having threatened to disinherit children who raise the idea.
"In reality, these conversations can be challenging,” he said.
Samuel Mather-Holgate, independent financial adviser at Mather and Murray Financial, echoed the same message.
He said: "These deeds have been under utilised, even before the IHT changes, but the proposed super tax is bound to get people to consider things they currently hadn’t.
"Financial planners bang on about compound interest and pound cost averaging but IHT payable generation on generations is compound interest in reverse and pound cost savaging.”
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Laura Miller is an experienced financial and business journalist. Formerly on staff at the Daily Telegraph, her freelance work now appears in the money pages of all the national newspapers. She endeavours to make money issues easy to understand for everyone, and to do justice to the people who regularly trust her to tell their stories. She lives by the sea in Aberystwyth. You can find her tweeting @thatlaurawrites
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