Deeds of variation can reduce SDLT!
1st August 2025
Posted in Articles, Stamp Duty Land Tax by Andrew Marr
When a person dies it is possible to amend their will for most practical purposes if this is done within two years of death. This involves one beneficiary agreeing that another beneficiary can benefit from what they have been left in the will and is known as a deed of variation (DOV). If this is done properly, then for inheritance tax (IHT) and capital gains tax (CGT) purposes the position is as if the will had directed the revised asset allocation. Therefore, beneficiaries will be treated as acquiring assets based on the value at the date of death for CGT purposes. Also, no gifts will be treated as being made for IHT purposes (from the original beneficiary to the new beneficiary) – which would otherwise have had the impact of triggering an IHT liability on the original beneficiary if they were to die within seven years.
DOVs are usually put in place for IHT and CGT purposes, but in certain cases they can help reduce stamp duty land tax (SDLT).
Example
Bill and Ben’s mother dies leaving them an £800,000 estate which consists of a £350,000 property and £450,000 in various investments to be divided equally. They both agree between themselves that Ben can have the property as a development project and so would only receive £50,000 of the investments and Bill would receive £400,000 of investments. Essentially, Ben is giving up £175,000 of his half share of the investments to maintain equality. The problem with this is that Ben soon learns that for SDLT purposes he is treated as buying Bill’s half of the property for £175,000. Given that Ben already owns a property, higher rates of SDLT (including the 5% surcharge) would be payable and this would come to £9,750. They explore ways of mitigating this SDLT and are told about the possibility of using a DOV.
Deeds of variation and SDLT
Special SDLT legislation covers the position with DOVs and is included in paragraph 4 of Schedule 3 in FA 2003. This exempts transactions from charge as long as the DOV takes place within two years of a person’s death and also ‘that no consideration in money or money’s worth other than the making of a variation of another disposition is given for it’. This means that in the case of Bill and Ben above, a DOV may offer a sensible route to avoid an SDLT charge.
Forbes Dawson view
Generally, but subject to various exemptions, SDLT is payable in respect of most kinds of consideration given for land and buildings. Without a specific relief, there would be a good argument that recipients of property under a DOV are also subject to SDLT (when the recipient has also given something up that would be consideration) and so the above exemption is helpful. However, the exemption will only generally be useful when there are other assets in the estate that the non-property owner can take to equalise the position.
If the above example only involved the property, then (by definition) any funds to ‘make Bill good’ would not come from the estate but rather from Ben (possibly through finance) and so SDLT would still be payable in respect of those funds. Also, for completeness, the DOV would also not be effective for IHT or CGT in those circumstances either. The take home message here is, firstly, that SDLT can often arise when property is moved around the beneficiaries after death, and secondly, that in the right circumstances a DOV can help to mitigate it.
