Charitable Legacy and IHT UK 2026: The 36% Reduced Rate (s36 IHTA), The 10% Baseline Test, and How to Reduce Your IHT Bill by Giving to Charity
A charitable legacy in your will does two things: it reduces the taxable estate AND — if the legacy is at least 10% of the baseline amount — it cuts the IHT rate from 40% to 36%. For a typical £800k estate, a £47.5k charity gift costs residuary beneficiaries only £11.4k net.
A £10 Charitable Gift in a Will Is Not Worth the Same as a £10 Gift to Your Children
A charitable legacy reduces the taxable estate (IHT saving: 40% of the gift). So a £10k charitable legacy costs residuary beneficiaries only £6k net (the other £4k is funded by the IHT saving). If the legacy also qualifies for the 36% rate (meets the 10% baseline test): the saving is even larger. Always check whether a charitable legacy is in your interests — it often delivers far more to charity than it costs the residuary estate.
| Aspect | Lifetime Giving | Death (Will) Legacy | Planning Guidance |
|---|---|---|---|
| Charitable exemption — s23 IHTA 1984 (the basic relief) | LIFETIME GIFTS TO CHARITY: any gift to a qualifying charity during lifetime is EXEMPT from IHT under s23 IHTA 1984. Completely exempt: no 7yr PET rule; no taper; no CLT. The gift leaves the estate immediately with no IHT consequence (even if the donor dies the next day). No monetary limit: the s23 exemption is unlimited. Any amount given to charity at any time is IHT-exempt. The gift must be to a 'qualifying charity' — see below. Income tax/CGT: a gift to charity during lifetime is also: (a) exempt from CGT (no gain/no loss treatment for assets given to charity — s257 TCGA 1992); (b) qualifies for Gift Aid if cash: the charity reclaims the basic rate income tax paid; the higher/additional rate taxpayer claims the difference between the donor's marginal rate and basic rate on their self-assessment return. Charitable gifts during lifetime are one of the most tax-efficient ways to reduce the estate for IHT while supporting a cause. | CHARITABLE LEGACY IN A WILL: a legacy to charity in the will is exempt from IHT under s23 IHTA 1984. The charitable legacy: is deducted from the estate before calculating the taxable estate; reduces the residuary estate (which is the 'taxable' part after NRB and exemptions); the executors pay the legacy to the charity; IHT is then assessed on the remainder. No monetary limit: the charitable legacy can be any amount (a specific sum; a percentage of the residue; the whole estate to charity). REQUIREMENT: the will must make clear that the legacy is to a qualifying charity (named charity; registered charity number recommended). If the charity has changed its name or merged: executors should check the charity is still registered. An 'ambulatory' legacy ('to the organisation carrying out [charitable purpose] from time to time') can catch successor charities but needs careful drafting. | Qualifying charities (s23(6) IHTA): the charity must be established for charitable purposes only. Types: (a) UK-registered charities (registered with the Charity Commission for England & Wales; Office of the Scottish Charity Regulator; Charity Commission for Northern Ireland); (b) EU and EEA charities: charities established in EU/EEA member states with equivalent status (this position has changed post-Brexit — seek specific advice for EU charities); (c) UK government/local authority: gifts to the Crown, national museums, universities (approved bodies under s25 IHTA) are exempt. COMMUNITY AMATEUR SPORTS CLUBS (CASCs): registered CASCs (registered with HMRC) qualify for an equivalent exemption to charities under s23 IHTA (s24A IHTA 1984, inserted by Finance Act 2014). HMRC charity reference number: include the charity's registered number in the will to aid identification. What if a charity no longer exists at death? The legacy may fail ('lapse') unless the will has a substitution or gift-over clause — use cy-pres principle (legal doctrine allowing the court to redirect a charitable gift to a similar purpose) or include a named alternative charity in the will. |
| The 36% reduced IHT rate — s36 IHTA and Schedule 1A IHTA | THE 36% RATE — WHEN IT APPLIES: if the estate (or any component of the estate) qualifies as a '10% charity estate': the IHT rate on the taxable part of that component is 36% instead of 40%. Potential saving: 4 percentage points on the taxable estate — equivalent to a 10% reduction in the IHT bill (40% → 36% = 10% less IHT). The 36% rate was introduced by Finance Act 2012 to incentivise larger charitable legacies. It was designed so that a well-calibrated charitable gift costs the residuary beneficiaries very little (or nothing) while delivering more to charity than the estate 'loses' in residue. | THE BASELINE AMOUNT CALCULATION (Schedule 1A IHTA 1984): the estate is divided into 'components': (1) the general component (the main component — all assets in the estate NOT covered by the other components); (2) the survivorship component (jointly owned assets passing by survivorship — the deceased's share of a joint tenancy); (3) the settled property component (assets in a qualifying IIP trust treated as in the deceased's estate under s49 IHTA). For EACH COMPONENT: (a) calculate the component's value; (b) deduct the NRB/RNRB attributable to that component; (c) deduct any spouse exemption for transfers from that component to the spouse; (d) the result is the BASELINE AMOUNT for that component. 10% test: if the charitable legacy from that component is at least 10% of the baseline: the 36% rate applies to the taxable part of that component. Each component is tested separately (unless a merging election is made). | PRACTICAL CALCULATION FOR A TYPICAL ESTATE (GENERAL COMPONENT ONLY): Estate = £1m. Spouse already received £400k (spouse exemption). Remaining general component = £600k. NRB = £325k. RNRB = £175k (home passing to children). Baseline = £600k − £325k − £175k = £100k. 10% of baseline = £10,000. If the will leaves £10,000 (or more) to charity: the 36% rate applies to the taxable estate after charity and NRB/RNRB. Taxable estate = £600k − £325k NRB − £175k RNRB − £10k charity = £90k at 36% = £32,400 IHT. Without charity: £100k at 40% = £40,000 IHT. Saving by adding £10k charity: £7,600 IHT. Net cost of £10k gift to charity to the residuary estate: £10,000 − £7,600 = £2,400. The charity receives £10,000 for a cost of only £2,400 to the residuary beneficiaries — effectively HMRC 'subsidises' the charitable gift at 76%. |
| The merging election (Schedule 1A para 7-8 IHTA) and component planning | MULTIPLE COMPONENTS PROBLEM: some estates have more than one component (general + survivorship; or general + settled property). Each component has its own baseline amount and its own 10% test. If the charitable legacy comes entirely from the general component: it may satisfy the 10% test for the general component but not for the survivorship or settled property components (which have no charitable legacy). Each component that satisfies the 10% test benefits from the 36% rate; components that do not satisfy the test pay 40%. ELECTION TO OPT OUT OF THE 36% RATE: in some cases, the 40% rate applied to a larger estate may produce less IHT than the 36% rate on a smaller taxable estate — because the charitable legacy needed to qualify reduces the residue significantly. The PR can elect OUT of the 36% rate if it would result in higher IHT for the beneficiaries (unusual but possible — specialist advice needed). | MERGING COMPONENTS (Schedule 1A para 8): the PR can elect to merge any combination of components to create a single merged component for the 10% test. This may help where: (a) the charitable legacy is from the general component but the survivorship component also has value — merging allows the general component's charitable legacy to be tested against the combined baseline; (b) the survivorship component has a small value that makes its own 10% threshold very low — merging it into the general component simplifies the test. The merging election MUST be made within 2 years of death (same deadline as many IHT reliefs). LATE ELECTION: if the will does not include a large enough charitable legacy to qualify for the 36% rate: the EXECUTORS cannot increase the charitable legacy after death to qualify (the legacy must come from the will or the intestacy). However, the PR can use a DEED OF VARIATION (s142 IHTA) within 2yr of death to vary the will and increase the charitable legacy — if the beneficiaries agree. This can be done specifically to qualify for the 36% rate (and the saving in IHT may benefit the residuary beneficiaries by more than the increased charitable gift costs them). | DEED OF VARIATION TO ACHIEVE 36% RATE: executors of a taxable estate where the will does not include a charitable legacy (or the legacy is below 10% of the baseline): consider whether a deed of variation (s142 IHTA) to increase or introduce a charitable legacy would: (a) qualify the estate for the 36% rate; AND (b) leave the residuary beneficiaries better off (after the charitable gift) than they would be without the variation (because the IHT saving exceeds the amount given to charity). For a large estate (where the taxable portion above the NRB/RNRB is significant): the numbers can work very strongly in favour of the variation. Example: £2m estate; £500k NRB+RNRB; taxable estate = £1.5m; 10% baseline = £150k charitable legacy. Without charity: £1.5m × 40% = £600k IHT. With £150k charity (via DoV): taxable estate = £1.35m × 36% = £486k IHT + £150k charity = £636k 'cost'. WITHOUT CHARITY: only £600k goes to HMRC; WITH CHARITY: £636k of cost — £36k more total. BUT: the charity receives £150k for a total additional cost of only £36k. If the residuary beneficiaries WANT to benefit a charity: this is highly efficient. If they DON'T want to benefit a charity: the DoV makes the estate 'poorer' by £36k (not recommended in that case). |
| Gifts to political parties and approved bodies — s25 IHTA | GIFTS TO POLITICAL PARTIES (s24 IHTA 1984): a transfer of value to a 'qualifying political party' is exempt from IHT. Qualifying conditions: the party must have had at least one MP returned at the last general election; OR obtained votes in the last general election for at least two seats and polled at least 150,000 votes in total. This exemption applies on death and during lifetime. No monetary limit. (This exempts legacies to the main political parties — not all political organizations qualify; check whether the specific party satisfies the conditions.) GIFTS TO APPROVED BODIES FOR NATIONAL PURPOSES (s25 IHTA): gifts to approved bodies (listed in Schedule 3 IHTA 1984) are IHT-exempt. Schedule 3 bodies include: the National Trust; the British Museum; the National Gallery; national libraries; universities; the Historic Buildings and Monuments Commission; local authorities; certain government departments. A gift of heritage property (listed buildings, artwork, historic collections) to a Schedule 3 body is entirely exempt from IHT. This is useful for estates containing heritage assets that the deceased wanted preserved in public care. | COMMUNITY AMATEUR SPORTS CLUBS (CASCs — s24A IHTA 1984): a registered CASC is treated similarly to a charity for IHT purposes: gifts to a registered CASC are IHT-exempt under s24A IHTA. The CASC must be registered with HMRC (not just incorporated or registered with Companies House). A local amateur football, cricket, or rowing club that is an HMRC-registered CASC can receive a legacy that is IHT-exempt and reduces the estate. CONDITIONAL EXEMPTION FOR HERITAGE ASSETS: where a gift of heritage property is NOT to an approved body but remains in private hands: the 'conditional exemption' (s30-s35 IHTA 1984) may apply. The exemption is conditional on: the property being kept in the UK; access being given to the public; the property being maintained in good repair. On sale or breach of conditions: the IHT is collected (with interest). | CHARITABLE LEGACY IN A WILL — DRAFTING POINTS: (1) NAME THE CHARITY and include the registered charity number. (2) SPECIFY WHETHER THE LEGACY IS: a specific monetary legacy ('£50,000 to [Charity] registered number XXXXXX'); or a percentage of the residue ('5% of my residuary estate to [Charity]'); or a residuary gift ('all my estate to [Charity]'). (3) INCLUDE AN ALTERNATIVE CHARITY CLAUSE: if the named charity ceases to exist, merges, or changes its purposes: provide for an alternative charity or give the executors power to apply the gift cy-pres. (4) FOR THE 36% RATE: draft the charitable legacy as at least 10% of the anticipated baseline amount. A percentage-of-residue legacy (rather than a fixed sum) is often better for the 36% test — because the baseline amount changes with asset values and the charitable gift automatically scales with the estate. (5) PERIODIC REVIEW: review the will every few years. If the estate has grown: a fixed charitable legacy may no longer be 10% of the baseline — a new will (or a codicil) may be needed to maintain the 36% rate. |
| Charitable giving during lifetime — interaction with the 7-year PET rule | LIFETIME CHARITABLE GIFTS — KEY ADVANTAGES: unlike gifts to individuals (which are PETs — potentially exempt transfers: exempt only if the donor survives 7yr; taxable on a sliding scale if the donor dies within 7yr): charitable gifts during lifetime are ALWAYS exempt under s23 IHTA (no 7yr rule; no taper; no PET categorization). A charitable gift made the day before death: exempt from IHT. A gift to a child made the day before death: a PET that fails — 40% IHT applies (no 7yr survival). This makes regular lifetime giving to charity (as an IHT strategy) very powerful: the estate is reduced; no 7yr waiting period; complete exemption. GIFT AID: for cash gifts: the charity can reclaim basic rate income tax via Gift Aid; higher/additional rate taxpayers reclaim the additional relief via self-assessment. The combined tax effect of Gift Aid + IHT exemption makes charitable giving extremely tax-efficient during lifetime. | INTERACTION WITH THE NORMAL INCOME EXPENDITURE EXEMPTION (s21 IHTA): regular charitable giving from surplus income may also qualify for the normal expenditure out of income exemption (s21 IHTA) — in addition to the s23 charitable exemption. If the donor habitually makes regular charitable donations from their income (and the donations are made from surplus income after meeting their normal standard of living expenses): the donations qualify under BOTH exemptions. The s21 exemption requires: (a) the payment is part of a regular pattern of expenditure; (b) out of income (not capital); (c) leaves the donor's normal standard of living unaffected. Applying s21 (normal expenditure) AND s23 (charitable exemption) together provides double protection. GIFT AID + IHT: a £10,000 cash gift to charity: Gift Aid reclaim = £2,500 (to the charity, total = £12,500); the donor (40% taxpayer) claims £5,000 back on self-assessment (net cost = £5,000); the gift reduces the estate by £10,000 (IHT saving at 40% = £4,000); total tax reclaimed/saved on the charitable gift = £9,000 on a gift worth £10,000. The effective net cost after all tax = £1,000. | CHARITABLE GIVING STRATEGY IN ESTATE PLANNING: (1) ANNUAL GIVING: regular annual charitable gifts from income (s21 + s23 IHTA) are the most tax-efficient charitable strategy during lifetime. Set up a standing order to a chosen charity each month: exempt from IHT; Gift Aid eligible; keeps the estate in check. (2) ASSET GIFTS: gifting appreciated assets (shares, investment property) to charity: exempt from CGT (s257 TCGA); exempt from IHT (s23 IHTA). An investment portfolio worth £100k with £50k of embedded gain: gifting to charity = £0 CGT + £0 IHT; selling and gifting the proceeds = £10k CGT (20% for higher rate taxpayer on £50k gain) + the cash donated. Gifting the shares directly to charity is materially more tax-efficient. (3) DONOR ADVISED FUNDS (DAFs): allow a large charitable gift in one year (tax relief in that year) while the distribution to actual charities is spread over time. Seek specialist advice on DAF structures available to UK taxpayers. (4) WILL REVIEW: ensure the will reflects the 36% rate threshold. Adjust the charitable legacy percentage if the estate has changed significantly since the will was made. |
Charitable legacy and IHT UK 2026. s23 IHTA 1984: charitable exemption — 'A transfer of value is an exempt transfer to the extent that the value transferred is attributable to property which is given to charities.' s23(1): the exemption applies both to lifetime transfers and to transfers on death. 'Given to charities' means transferred to a body established for charitable purposes only; for the body to qualify, it must be: (a) established under the law of any part of the United Kingdom; (b) a charity within the meaning of s1 Charities Act 2011 (England & Wales); OR (c) managed or controlled wholly or mainly in the UK (for Scotland and Northern Ireland charities or equivalents). The FA 2010 extended the exemption to EU/EEA charities — this may have changed post-Brexit and specialist advice should be sought for non-UK charities. s24 IHTA 1984: political parties exemption — 'A transfer of value is an exempt transfer to the extent that the value transferred is attributable to property which is given to a qualifying political party.' Qualifying: at least two MPs returned at the last general election; or one MP and the party received not less than 150,000 votes at the last general election. s24A IHTA 1984: Community Amateur Sports Clubs — inserted by Finance Act 2014; CASCs registered with HMRC receive equivalent IHT treatment to charities. s25 IHTA 1984: approved bodies for national purposes — transfers to bodies listed in Schedule 3 IHTA 1984 are exempt. Schedule 3 bodies include: the National Trust; the National Galleries of Scotland; the National Gallery; the National Library of Wales; the British Museum; the Natural History Museum; the National Maritime Museum; the Science Museum; Historic England; national parks; universities. s36 IHTA 1984 and Schedule 1A IHTA 1984 (inserted by Finance Act 2012): the 10% charitable legacy reduced rate. Schedule 1A: defines the baseline amount for each 'component' of the estate. Para 1: the estate is divided into: (a) the survivorship component (property passing by survivorship on the deceased's death); (b) the settled property component (relevant property trusts in which the deceased had a qualifying IIP — s49 IHTA treatment); (c) the general component (everything else). Para 4: the baseline amount for a component = the value of the component (before deducting the charitable legacy from that component) MINUS: (a) the portion of the NRB attributable to that component; (b) the portion of the RNRB attributable to that component; (c) any spouse exemption for transfers from that component. Para 6: the 10% condition is met for a component if the amount of the charitable legacy from that component is at least 10% of the baseline amount. If met: the IHT rate on the taxable part of that component is 36% (not 40%). Para 7-8: merging election — the PR can elect to merge two or more components for the 10% test (e.g., merge the general and survivorship components). Para 9: the opting-out election — the PR can elect for the 36% rate NOT to apply (where the 40% rate would produce a lower overall IHT bill — unusual but possible). Deadline for elections: 2 years from the end of the month in which the death occurred (the same deadline as s142 deed of variation). Deed of variation (s142 IHTA 1984): variation of the will within 2yr of death to introduce or increase a charitable legacy — treated as if it were in the original will for IHT purposes; triggers the 36% rate if the new charitable legacy satisfies the 10% test. All residuary beneficiaries who give up some of their share must consent to the variation. CGT and charitable gifts: s257 TCGA 1992 — a disposal of an asset to a charity is not a chargeable disposal for CGT purposes; there is no gain and no loss on the disposal. This makes gifting appreciated assets directly to charity more tax-efficient than selling the asset and donating the proceeds (no CGT on the direct gift; but CGT applies on the sale). Gift Aid (Income Tax Act 2007, s413-s430): allows a UK charity to reclaim basic rate income tax (20%) on a cash donation by a UK taxpayer. The donor must be a UK taxpayer. Higher rate (40%) and additional rate (45%) taxpayers claim the difference (20% or 25%) via self-assessment. Payroll giving (under the Give As You Earn scheme): donations via PAYE payroll are deducted before income tax — full income tax relief at source; no Gift Aid required; the donation reduces taxable pay. Interaction with lifetime allowance: the pension lifetime allowance was abolished from April 2024; serious ill health lump sums and charity pension nominations remain separately regulated.
Frequently Asked Questions
Is a charitable gift in a will exempt from inheritance tax?
Yes — a charitable legacy in a will is fully exempt from IHT under s23 IHTA 1984. The gift to charity is deducted from the estate before calculating the IHT on the remainder. There is no upper limit on the exemption: you can leave any amount, any percentage of the residue, or the entire estate to a qualifying charity and it is IHT-free. The charity must be a 'qualifying charity' (UK-registered charity; recognised by HMRC). The charitable legacy reduces the taxable estate, potentially also reducing the overall IHT bill. In addition, if the charitable legacy equals at least 10% of the 'baseline amount' (the taxable estate after NRB and other exemptions): the IHT rate on the remaining taxable estate drops from 40% to 36% (s36 IHTA 1984 — the reduced rate).
What is the 36% reduced IHT rate for charitable legacies?
Under s36 IHTA 1984 (Schedule 1A IHTA, introduced by Finance Act 2012): if your estate leaves at least 10% of the 'baseline amount' to charity in the will, the IHT rate on the remaining taxable estate is 36% instead of 40%. The baseline amount = the value of the estate component (usually the 'general component') MINUS the available NRB, RNRB, and any other exemptions (e.g., spouse exemption) — but BEFORE deducting the charitable legacy itself. Example: estate £800k; NRB £325k; no RNRB or spouse exemption. Baseline = £475k. 10% = £47,500. Leaving £47,500+ to charity triggers the 36% rate: taxable residue = £427,500 at 36% = £153,900 IHT. Without charity: £475k at 40% = £190,000. IHT saving from charity = £36,100. The charitable gift of £47,500 costs the residuary beneficiaries only £47,500 − £36,100 = £11,400 net — the rest is effectively funded by the IHT saving.
Are lifetime gifts to charity exempt from IHT?
Yes — and more comprehensively than gifts to individuals. Under s23 IHTA 1984: a lifetime gift to a qualifying charity is IMMEDIATELY exempt from IHT — there is no 7-year waiting period, no taper, no PET mechanism. The gift is exempt even if made the day before death. This contrasts with gifts to individuals (PETs — taxable if donor dies within 7yr). Qualifying charities include all UK-registered charities (Charity Commission, OSCR, CCNI) and registered CASCs. Lifetime charitable gifts also benefit from: Gift Aid (charity reclaims basic rate tax; donor claims higher/additional rate relief via self-assessment); CGT exemption if gifting appreciated assets (s257 TCGA 1992 — no CGT on assets gifted directly to charity). Combining the s21 normal expenditure exemption with s23: regular charitable payments from surplus income are doubly protected.
Can I use a deed of variation to introduce a charitable legacy to get the 36% rate?
Yes — a deed of variation (s142 IHTA 1984) executed within 2 years of death can be used to introduce or increase a charitable legacy in the will. The variation is treated as if it were in the original will for IHT purposes (s142 'relate-back' treatment). If the variation introduces a charitable legacy equal to at least 10% of the baseline amount: the 36% reduced rate applies (instead of 40%) to the remaining taxable estate. The variation must be agreed by all beneficiaries who lose out (those whose share of the residue is reduced to fund the charitable legacy). The economics may work well: the IHT saving from the 36% rate (paid to HMRC) is less than the charitable gift amount — so the residuary beneficiaries fund only part of the charitable gift from their inheritance. All affected beneficiaries must sign the deed. A solicitor should draft the deed of variation.
Which charities qualify for the IHT charitable exemption?
A 'qualifying charity' for s23 IHTA 1984 includes: (1) UK charities registered with the Charity Commission for England and Wales, the Office of the Scottish Charity Regulator (OSCR), or the Charity Commission for Northern Ireland (CCNI). (2) UK charities that are not required to register (typically very small charities) but are established for charitable purposes only. (3) Registered Community Amateur Sports Clubs (CASCs — s24A IHTA 1984). (4) Schedule 3 IHTA 1984 approved bodies for national purposes: the National Trust, national museums, national libraries, universities, Historic England, and local authorities. (5) The Crown and government departments. Include the charity's registered number in the will to avoid disputes. A will leaving assets to a named charity that has since changed its name, merged, or deregistered needs careful executor interpretation — include an alternative charity clause or cy-pres provision in the will to prevent the legacy failing.
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