Giving Money to Charity in Your Will: Inheritance Tax Rules

Giving money to charity through your will can allow you to support an organisation or cause that matters to you while potentially reducing the Inheritance Tax (IHT) payable on your estate.

Qualifying charitable gifts made through a will are generally exempt from Inheritance Tax. This means the charitable donation is normally deducted before the taxable value of the estate is calculated. In some circumstances, leaving a sufficient proportion of the estate to charity can also reduce the IHT rate applying to the relevant part of the remaining taxable estate from 40% to 36%.

However, leaving money to charity should be planned carefully. The reduced 36% rate is subject to a specific 10% test, and the calculation is not always as simple as giving away 10% of the total estate.

How Giving Money to Charity in Your Will Works

A will determines how your money, property and possessions should be distributed after your death. You can use it to leave assets to family members, other beneficiaries and qualifying charities.

HMRC confirms that a charitable legacy can take several forms. You can leave:

• A fixed amount of money.
• A particular asset or item.
• A proportion of your estate.
• Some or all of the residue remaining after other gifts and liabilities have been dealt with.

Provided the charitable exemption conditions are satisfied, the qualifying amount passing to charity is exempt from Inheritance Tax.

Is Leaving Money to Charity Free From Inheritance Tax?

Qualifying charitable gifts are generally exempt from IHT. This means the amount passing to charity is removed from the value subject to Inheritance Tax rather than being taxed and then passed to the charity.

For example, suppose an estate contains £700,000 of assets before considering liabilities, exemptions, available nil-rate bands and other relevant factors. If £50,000 passes outright to a qualifying charity, that charitable amount is generally exempt when the estate’s IHT liability is calculated.

The actual tax calculation will depend on the complete estate, including debts, other exemptions, available thresholds, previous lifetime transfers and any applicable reliefs. Reviewing the wider Inheritance Tax gift exemptions in London can help establish whether other transfers made during the donor’s lifetime may also qualify for exemption.

For that reason, simply subtracting a charitable gift from the headline estate value will not always provide the final IHT liability.

Can Giving Money to Charity Reduce the IHT Rate to 36%?

Potentially, yes.

The standard rate of Inheritance Tax on the taxable part of an estate above the available thresholds is generally 40%. A reduced rate of 36% can apply to a qualifying part of the estate where the charitable giving condition is met.

Broadly, this requires the amount passing to charity to equal at least 10% of the relevant baseline amount.

This is an important distinction. The rule should not simply be described as “leave 10% of your total estate to charity”. HMRC uses a statutory calculation to establish the baseline amount against which the charitable donation is tested.

How the 10% Charity Test Works

The baseline calculation takes account of factors including the chargeable estate, available nil-rate band and the charitable legacy itself. HMRC provides an Inheritance Tax reduced rate calculator to help work out the charitable donation needed for an estate to qualify for the reduced rate.

Where the estate is straightforward, the calculation may be relatively simple. More complex estates can contain separate components for the purposes of the reduced-rate rules.

For example, an estate may involve:

• Assets owned personally.
• Jointly owned property passing by survivorship.
• Property held within certain trusts.
• Assets qualifying for specific Inheritance Tax reliefs.
• Previous lifetime transfers affecting the available nil-rate band.

The 10% test may need to be considered separately for different estate components. It is therefore possible for one component of an estate to qualify for the 36% rate while another remains subject to the normal 40% rate.

This is why a carefully calculated charitable legacy can be preferable to assuming that a particular percentage of the gross estate will automatically produce the reduced IHT rate.

Giving a Fixed Amount to Charity

One option when giving money to charity in your will is to specify a fixed cash amount.

For example, your will could leave £20,000 to a particular charity.

This provides certainty over the amount intended for the organisation, but changes in the value of your estate can affect the overall tax consequences.

If the objective is specifically to meet the charitable 10% test for the reduced IHT rate, a fixed legacy that appears sufficient when the will is written may no longer satisfy the test when the estate is eventually administered.

Leaving a Percentage of Your Estate to Charity

Another option is to leave a proportion of the estate or its residue to charity.

The residue is broadly what remains after debts, administration expenses, specific gifts and other relevant payments have been dealt with.

A percentage-based charitable legacy can adjust as the value of the estate changes. However, even leaving 10% of the residue does not necessarily mean the statutory 10% baseline test will automatically be satisfied.

The wording should therefore reflect what you actually want to achieve rather than relying on a simple percentage without considering the IHT calculation.

What Can You Leave to Charity?

Donating money to charity in your will is only one possibility. A charitable legacy can also involve other assets.

Depending on the estate and the wording of the will, you may leave:

• Cash.
• Shares or investments.
• Property or land.
• Personal possessions.
• A specified percentage of the estate.
• Part or all of the residuary estate.

The most appropriate structure depends on your objectives, the assets you own and what you want other beneficiaries to receive.

Which Charities Qualify for the IHT Exemption?

The tax exemption applies where the recipient satisfies the relevant requirements for charitable exemption.

HMRC guidance states that outright gifts can qualify where the recipient qualifies as a charity under the applicable rules and is managed by fit and proper persons.

Before naming an organisation in your will, you should therefore confirm its correct legal identity and charitable status.

Using the organisation’s full legal name can help avoid uncertainty. Depending on where the organisation is established, its details can be checked through the relevant charity register for England and Wales, Scotland or Northern Ireland.

Giving Money to Charity Tax Deduction: How the IHT Saving Works

The phrase giving money to charity tax deduction can be misleading in the context of a will because this is not the same as claiming an Income Tax deduction on an everyday expense.

For IHT purposes, the qualifying charitable legacy is generally exempt and is therefore removed when calculating the amount of the estate exposed to Inheritance Tax.

If the charitable giving condition is also satisfied, the relevant taxable estate component may qualify for the reduced 36% IHT rate.

These two effects are different:

• The charitable gift itself can be exempt from IHT.
• A sufficiently large qualifying charitable legacy can potentially reduce the IHT rate on the relevant remaining taxable estate from 40% to 36%.

Both should be considered when assessing the tax effect of a charitable legacy.

Does Giving More to Charity Always Leave Family With Less?

Not necessarily to the same extent as the additional charitable gift.

Where an estate is close to satisfying the 10% charitable giving condition, increasing the charitable legacy may allow the relevant taxable component to qualify for the 36% IHT rate.

The reduction in IHT can partly offset the additional amount passing to charity.

This does not mean increasing a charitable gift will always improve what other beneficiaries receive. The result depends on the estate’s figures and the way the charitable giving condition applies.

Where tax efficiency is one of the objectives, the figures should therefore be calculated rather than assuming that a particular charitable percentage will produce the best outcome.

Why the Wording of Your Will Matters

A charitable legacy should identify clearly what is being given and which organisation should receive it.

HMRC’s public guidance recommends including the charity’s full name in the will. Accurate wording can reduce the risk of uncertainty when executors eventually administer the estate.

The will should also make clear whether the charity receives:

• A fixed cash legacy.
• A particular asset.
• A percentage of the residue.
• The entire residuary estate.
• An amount calculated specifically by reference to the charitable IHT rules.

Professional legal advice should be obtained when drafting or changing a will. Tax planning can establish the intended IHT outcome, but the will itself must also be legally effective.

Review Your Charitable Legacy When Circumstances Change

A will should not necessarily be treated as a document that is written once and never reviewed.

The value and composition of an estate can change considerably over time. You might sell a business, acquire or dispose of property, make substantial lifetime gifts or experience changes in family circumstances. Where regular family support is funded from surplus income, gifts out of disposable income in London should also be reviewed alongside the charitable and wider estate plan. Where regular lifetime gifts are funded from surplus income, the normal expenditure out of income rules in London may also need to be considered as part of the wider estate plan. Where lifetime transfers form part of the plan, reviewing the available IHT gift reliefs in London can help determine whether those gifts qualify for specific exemptions or reliefs.

The financial position of the charities you support and your own charitable priorities may also change.

A charitable legacy that was appropriate when a will was originally drafted may therefore no longer reflect your wishes or produce the anticipated IHT result many years later.

Common Mistakes When Leaving Money to Charity

• Assuming the charitable gift itself is subject to the normal 40% IHT rate.
• Believing that leaving exactly 10% of the gross estate automatically qualifies the remainder for the 36% rate.
• Confusing 10% of the residue with HMRC’s statutory baseline amount.
• Using an incomplete or incorrect charity name in the will.
• Failing to check whether the organisation qualifies for charitable exemption.
• Setting a fixed legacy and never reviewing it when the estate changes substantially.
• Ignoring lifetime gifts that may affect the available nil-rate band and charitable calculation. The Inheritance Tax seven-year rule in London is particularly relevant where potentially exempt lifetime transfers were made before death.
• Assuming every part of a complex estate automatically qualifies for the reduced rate once the 10% condition is met somewhere in the estate.

Keeping Charitable Giving Aligned With Your Estate Plan

Giving money to charity through your will can achieve two separate objectives: supporting organisations that matter to you and potentially reducing the Inheritance Tax payable on your estate.

Qualifying charitable legacies are generally exempt from IHT. Where the statutory charitable giving condition is also satisfied, the rate applying to the relevant taxable estate component can potentially fall from 40% to 36%.

The important point is to plan around the actual IHT calculation rather than relying on a simple percentage of the headline estate value. Considering charitable legacies alongside wider personal tax planning in London can help ensure the estate strategy reflects the individual’s broader tax position. Previous lifetime gifts, available nil-rate bands, reliefs, jointly owned assets and trusts can all affect the result. Understanding Inheritance Tax planning for gifts in London can help establish how earlier transfers may affect the eventual tax position of the estate.

Anyone considering leaving money to charity in their will should therefore make sure the charitable organisation is identified correctly, the intended legacy is clearly drafted and the tax consequences are reviewed alongside the wider estate plan.

Case Study: Reviewing a Charitable Legacy and Its Inheritance Tax Impact

James approached our Farringdon office while reviewing his estate plan. His existing will left a fixed amount to a charity, with the remainder of his estate passing to his children. As the value of his property and investments had increased considerably since the will was written, he wanted to understand whether the charitable gift could reduce the Inheritance Tax payable on his estate.

Cigma Accounting reviewed the estimated value and composition of James’s estate alongside the proposed charitable legacy. We explained that a qualifying gift to charity would generally be exempt from IHT, but that obtaining the reduced 36% Inheritance Tax rate on the relevant taxable part of the estate required the separate 10% charitable giving condition to be satisfied.

Rather than assuming that leaving 10% of the total estate would meet the requirement, we considered the charitable gift alongside the available nil-rate band, other beneficiaries and relevant estate assets. This helped James understand why changes in the value of his estate could affect whether a fixed charitable legacy achieved his intended tax outcome.

As part of the wider review, Cigma Accounting also considered his personal tax, investment position, lifetime gifting and Inheritance Tax planning. James could then discuss the appropriate wording of his charitable legacy with his solicitor, supported by a clearer understanding of the potential tax consequences.

The review gave James greater clarity over how much he wished to leave to charity, what his family could potentially receive and why his estate plan should be reviewed again if his assets or circumstances changed substantially.

Disclaimer: This article provides general information about charitable giving and UK Inheritance Tax based on rules and HMRC guidance available for 2026/27. Estate planning and the 10% charitable giving calculation can be complex. Legal advice should be obtained when making or changing a will, with tax advice where appropriate.