Charitable gifts in Wills are estimated to have saved estates £1.28bn in IHT. For those considering how to provide for their loved ones while supporting a charity that matters to them, it is worth understanding how these gifts work and what to consider when making your Will.
Why this matters now
More families are facing potential IHT liabilities as the value of their assets increases. With the IHT thresholds frozen for many years, even a modest family home can now push an estate over the limit.
From 6 April 2027, most unused pension funds and certain pension death benefits will also come within the scope of IHT, potentially increasing the tax payable by some estates.
For those thinking about their estate planning, leaving a gift to charity can be one way to support a good cause while making use of the tax relief available.
How charitable gifts can reduce IHT
There are two main IHT benefits to consider when leaving a gift to charity in your Will.
1. Charitable gifts are generally exempt from IHT
Gifts left outright to qualifying charities are exempt from IHT. This means that the amount donated is not subject to IHT, allowing the charity to receive the gift without an IHT deduction.
You can leave a fixed sum of money, a particular asset or a share of what remains in your estate after other gifts and expenses have been dealt with.
2. Leaving 10% or more to charity can reduce the IHT rate
If you leave at least 10% of the relevant net estate value to charity, the IHT rate on the qualifying part of your estate can fall from 40% to 36%
The calculation is more involved than simply leaving 10% of everything you own, as it depends on how your estate is made up and the applicable IHT rules. However, where the reduced rate applies, it can provide an additional tax benefit alongside the charitable exemption.
The key is to understand how the gift will work in the context of your wider estate, including the amount you want to leave to family and other beneficiaries.
Leaving a charity a gift in your Will has another advantage over making the gift during your lifetime. As the gift is only made on your death you keep full access to your assets and income during your lifetime This can be particularly important when planning for future living costs, care or other unexpected expenses.
Getting your Will right
If you decide to leave a gift to charity, it is important to take care over how that intention is set out in your Will. Even small mistakes in how a gift is worded can mean your wishes are not carried out as you intended.
Common issues to consider include:
- Naming the charity correctly. Use its full, current name and check its details so there is no uncertainty about which organisation you intend to benefit.
- Checking that the organisation qualifies. Not every organisation will qualify for the relevant IHT exemption, so it is important to confirm its status.
- Choosing how to calculate the gift. A fixed sum and a percentage of your estate can have different consequences as the value of your assets changes. If you want the gift to meet the 10% threshold for the reduced IHT rate, careful drafting and calculations are particularly important.
- Planning for changes to the charity. Consider what should happen if the charity merges, changes its name or closes before your death. Appropriate wording can help reduce the risk of uncertainty about your intentions.
The right approach will depend on your circumstances, the assets you own and the people or causes you wish to benefit. A charitable gift should therefore be considered as part of your overall estate planning, rather than in isolation.
Steps to take now
If you are considering leaving a gift to charity, there are several practical steps you can take.
Review your existing Will. Check that it reflects your current wishes and circumstances, including any changes to your family, finances or the charities you want to support.
Consider the impact on your estate. Think about how much you want to leave to charity, how you want the rest of your estate to be distributed and whether the available IHT reliefs could affect your plans.
Talk to your family where appropriate. Explaining your intentions can help loved ones understand your decisions and reduce the risk of unexpected disagreements later.
Take advice before making changes. A solicitor can help you draft the gift correctly, consider whether the reduced IHT rate may apply and assess how the proposed arrangements fit with your wider estate planning.
How TWM can help
At TWM Solicitors, our Private Client team advises individuals and families on Wills, estate planning, and Inheritance Tax. We can help you include charitable gifts in your Will, ensure your wishes are clearly expressed and consider how your plans fit within your wider estate planning.
Reviewing your Will and estate plan can help you make informed decisions about the legacy you want to leave, both for your loved ones and for the causes that matter to you. If you are thinking about leaving a gift to charity in your Will and would like advice, please contact our Private Client team.