Inheritance Tax Benefits Of Leaving To A Charity in a Will
Many people when making their Will choose to leave something to a charity or charities so that they can help others who benefit from the charity work. For instance Bristol Dementia Action Alliance (BDAA), BRACE and St Peters Hospice are just some of the local charities you might be aware of and support in your Will.
However, for those with philanthropic intentions, leaving charitable legacies are even more appealing given how tax efficient such a gift can be. This is especially the case after the recent Budget introduced some significant changes to inheritance tax (IHT). These changes are likely to substantially increase the number of estates subject to IHT in the coming years. Leaving charitable gifts in the Will could be the ideal tax efficient solution.
How can someone give to charity via their Will?
A charitable gift can be made in several different ways in a Will. Either via a specific sum of money (like £1,000), via a specific item (like a property) or by leaving a portion of the residue of the estate to charity. The residual estate is the value left after all specific gifts of money and items are made and all liabilities paid (debts, funeral expenses, IHT etc).
When and how can a legacy be tax efficient?
Tax efficiencies can be found in situations where an estate would be subject to IHT. Due to the recent Budget changes, the IHT position may change for some estates in April 2026 and again in April 2027 so this should be factored into any decisions made.
This tax efficiency is for two reasons:
1. Donations to charity are not subject to IHT if subject to certain qualifying criteria.
2. If at least 10% of the net estate goes to charity, the inheritance tax rate applying to the remainder of the taxable estate reduces from 40% to 36%.
Key points to consider
Under HMRC guidance gifts made to qualifying charities are wholly IHT exempt. There is no value limit and applies to both in lifetime and on death.
For gifts on death, it must be made clear in the Will which charity or charities that are to benefit. If there are doubts, the gift can lapse, with the charity then receiving nothing. The best practice is to include the full correct name and address of the charity and particularly its registered charity number as of the date of the Will. For example, there are many types of cancer charity that exist, and there can be more than one charity for the same type of cancer.
Most charity websites show the registration number at the bottom of their homepage, and if necessary, an online check can be made by a search with the Charity Commission for England and Wales.
It is also sensible to add provisions describing what the person would like to happen if the charity no longer exists at the time of your death, for example proposing an alternative charity or nearest one with same aims and objectives.
The Will would need to state the specific asset, or amount that is to be given at death if making a monetary or specific legacy. For the reduced rate of IHT to be available, specific wording should be included.
If gifting to charity is being done for tax efficiency, please bear in mind that although the principle of IHT exemption is well established but this may change in the future. Currently for that purpose a charity is defined as a body of persons or a trust that is established for charitable purposes only, and meets all the jurisdiction, registration and management conditions under HMRC rules and requirements.
If you are looking at updating or doing your Will and your estate potentially has IHT issues, then gifting to a charity could be the answer. Especially if you have causes close to your heart that you think you would like to support. If you’d like to have a relaxed chat about IHT planning options, both in lifetime and on death, please contact us on 0117 3636 212 or email office@haroldstephens.co.uk.