Taxpayers are saving more on Inheritance Tax (IHT) by leaving gifts to charity in their wills – and doing so could also help you cut your tax bill.
According to analysis of government figures by TWM Solicitors, the amount saved on IHT through charitable giving has risen by 88% to £1.28bn over the past six years – up from £680m in 2020-21.
Gifts to charity in your will are exempt from IHT and, if you leave enough, you could also qualify for a lower IHT rate on part of your estate.
And with most unused pensions set to be included in estates for IHT from April 2027, charitable giving could become a more important consideration for some families.
Here, Which? explains how much you could save on IHT by giving to charity in your will, alongside common mistakes to avoid.
How to cut IHT through charity donations
Under current rules, IHT is charged at 40% on anything over your tax-free allowance.
Everyone gets a tax-free allowance of £325,000 – called the nil-rate band. You may also get an extra £175,000 allowance, called the residence nil-rate band, if you leave your home to your children or grandchildren. This means one person could potentially leave up to £500,000 tax-free.
Married couples and civil partners can pass on unused allowances, which could allow a surviving partner to leave up to £1m tax-free. However, the extra home allowance starts to reduce if the estate is worth more than £2m.
Gifts to charity in your will – whether a fixed amount, specific item or percentage of what is left over – are generally exempt from IHT and can reduce the value of your estate on which tax is charged.
If you give at least 10% of your remaining estate to charity, the tax rate on the rest drops from 40% to 36%. The 10% isn’t simply calculated against the total value of your estate. Instead, it is tested against what’s known as the ‘baseline amount’ – a figure used to determine how much needs to go to charity to qualify for the lower rate.
Working out the baseline amount can be relatively straightforward for some estates, but the calculation can become more complicated depending on how the estate is structured. It takes into account the taxable value of the estate after allowable deductions, such as debts and funeral expenses, as well as the standard nil-rate band.
Head of personal finance at AJ Bell, Sarah Coles, said a common mistake is to also deduct the residence nil-rate band when calculating the baseline amount. Doing so can make the charitable gift needed to qualify for the 36% rate appear smaller than it really is.
If you’re considering leaving enough to charity to qualify for the lower IHT rate, it may be worth getting professional advice to make sure your will is drafted correctly and the gift meets the 10% threshold.
- Find out more: inheritance tax: thresholds, rates and who pays
How much IHT could you save?
How much you could save depends on the size and make-up of your estate, and how much you leave to charity.
These examples from AJ Bell show how leaving enough to charity to qualify for the 36% rate could affect the tax bill and the amount left to other beneficiaries:
Calculations assume the standard £325,000 nil-rate band applies, with no residence nil-rate band or transferred nil-rate band from a spouse/civil partner, nothing left to a spouse, no lifetime gifts and no other charity donations.
Source: AJ Bell
Will this change after April 2027?
From April 2027, most unused pensions will be included in your estate for IHT purposes, which could increase the overall taxable value of many estates.
While the tax rules for charitable giving are not changing, including pensions in your estate could increase the amount you need to leave to charity to meet the 10% test for the lower 36% rate.
Sarah Coles says that, as a rule of thumb, if you’re already planning to leave around 4% of the baseline amount to charity, increasing this to 10% could mean that more money passes to the charity and your other beneficiaries, rather than to HMRC.
However, separate rules determining which charitable gifts qualify for IHT relief have also changed.
For deaths on or after 6 April 2026, gifts generally need to go directly to qualifying UK charities or sports clubs to qualify for IHT relief. Gifts made through certain charitable trusts may no longer qualify, following a change in the autumn budget.
If you’re planning to leave money through a charitable trust, consider getting professional advice to make sure the gift will qualify for the exemption.
- Find out more: how inheritance tax will apply to pensions
How to gift to charity in your will
Whether you want to cut your IHT bill or simply support a cause close to your heart, there are a few important steps to follow when leaving a gift in your will:
- Talk to your family about your plans – Explaining your wishes in advance can help avoid surprises or misunderstandings after you die.
- Include the charity’s full and correct name – Use the charity’s full, official name in your will. Many causes have similar names or regional branches, so exact naming can help to make sure your gift reaches the intended organisation.
- Provide the official charity registration number – Charity names can change, but the registration number can help your executors to identify the correct organisation.
- Be precise about how the gift is calculated – If you want to leave at least 10% of your estate to charity to qualify for the lower IHT rate, the wording of your will matters. The amount needed is based on a specific ‘baseline amount’, rather than simply 10% of what remains after tax, so consider getting professional advice to make sure your gift meets the threshold.
- State clearly if your gift is for a specific purpose – Otherwise, charities may use donations for their general work. If you want your gift used for a particular project, branch or campaign, check with the charity first that it can accept the restriction
Find out more: should you donate to charity in your will?
Be wary of scammers
Criminals often use IHT rules to scam people trying to reduce their tax bill through fake charities and bogus legal schemes.
To protect yourself, always verify an organisation’s name and registration number on the appropriate charity register before including them in your will, type website addresses directly into your browser rather than clicking links in unsolicited emails, and never transfer funds using money-transfer services or personal accounts.
If you fall victim to a scam, contact your bank immediately to block further payments, report the fraud to Action Fraud, and speak to a qualified solicitor to update your will and secure your estate.
