IHT and Charity Legacies UK: Leaving a Gift to Charity in Your Will and the 36% Reduced IHT Rate (2026)
Charitable legacies are fully exempt from IHT with no limit (s23 IHTA 1984). If at least 10% of the net estate passes to charity, the IHT rate on the rest reduces from 40% to 36% (s36 IHTA 1984) — meaning the family may end up better off than if no charity gift were made. A percentage residuary legacy reliably hits the 10% threshold.
| Scenario | IHT Rate | IHT Paid | Net to Family | To Charity |
|---|---|---|---|---|
| No charity gift (estate £1m, NRB £325k) | 40% | £270,000 | £730,000 | Nil |
| 10% charity gift = £100,000 (36% rate) | 36% | £207,000 | £693,000 | £100,000 |
| 10% charity gift = £100,000 (if still 40%) | 40% | £230,000 | £670,000 | £100,000 |
| All to charity (unlimited s23 exemption) | N/A | £0 | Nil | £1,000,000 |
Illustrative example: estate £1,000,000, NRB £325,000, taxable estate £675,000. No RNRB assumed for simplicity. The 36% rate row shows the benefit of the reduced rate vs a hypothetical 40% rate on the same estate with the same charity gift.
Charity Legacies and IHT: A Complete Guide
Charitable legacies: exempt from IHT with no limit
A gift to a qualifying charity in a will (or made during lifetime) is fully exempt from IHT under s23 IHTA 1984. The exemption: (1) Has no monetary limit — any amount can pass to charity free of IHT; (2) Has no time limit — charitable gifts on death are immediately exempt, unlike PETs which require seven-year survival; (3) Applies to gifts to registered charities established in the UK (and to certain overseas charities under HMRC qualifying conditions); (4) Can be a specific sum (pecuniary legacy — 'I give £10,000 to [Charity]'), a specific asset (share of property, investment portfolio), or a share of the residue (residuary legacy — '10% of my residuary estate to [Charity]'). The IHT exemption reduces the taxable estate: a £100,000 charitable gift reduces the IHT estate by £100,000, saving £40,000 in IHT (at 40%). The net cost to the estate of the charitable gift is effectively £60,000 (£100,000 gift − £40,000 IHT saved). For charities, the gift is received in full. The IHT exemption on charitable gifts was one of the earliest and most significant IHT reliefs — charities are effectively co-funded by the Exchequer, which would otherwise collect the IHT.
The 36% reduced IHT rate: when 10% goes to charity
The Finance Act 2012 (now codified in s36 IHTA 1984 and Schedule 1A) introduced a reduced 36% IHT rate (instead of 40%) where the deceased leaves at least 10% of the 'net estate' to qualifying charities. This is a very significant planning tool: by leaving 10% to charity, the overall IHT paid on the remaining taxable estate reduces from 40% to 36% — a 10% reduction in the IHT rate. In many cases, the residuary beneficiaries (family) are no worse off (or even better off) than if no charity gift were made. Example: Estate £1,000,000. NRB £325,000. Taxable estate = £675,000. Without charity gift: IHT = 40% × £675,000 = £270,000. Net to family = £730,000. With 10% charity gift (£100,000 to charity): charity reduces taxable estate to £575,000. IHT = 36% × £575,000 = £207,000. Net to family = £693,000. Net to charity = £100,000. Total value created = £793,000 (£100,000 to charity + £693,000 to family) vs £730,000 without the gift. The family give up £37,000 of their inheritance but the charity receives £100,000 — a £63,000 bonus to the charity effectively paid from the IHT reduction.
Calculating the 10% threshold: the 'net estate' and components
The 10% calculation is based on the 'net estate' — not the gross estate. The net estate is the estate after deducting: (1) All IHT exemptions (spousal exemption, BPR, APR); (2) The NRB (£325,000) applicable to the component. The IHT estate is divided into up to three 'components' for the purpose of the 10% calculation: (a) The surviving spouse component: assets passing outright to the surviving spouse or civil partner; (b) The settled property component: assets in trust; (c) The general component: everything else. For most estates, only the general component applies. The 10% is calculated against each component separately (by default). Merging components: if it is beneficial, the personal representatives can elect to merge two or more components — treating them as a single component for the 10% test. Merging may allow a smaller charity gift to satisfy the 10% threshold across a merged component. The 10% threshold is a cliff edge: where the charitable gift is just below 10%, increasing the gift slightly to 10% saves significant IHT (from 40% to 36%) — increasing the total value distributed.
Qualifying charities: HMRC requirements
For the s23 IHTA 1984 exemption and the s36 reduced rate to apply, the charity must be a qualifying body: (1) In England and Wales: registered with the Charity Commission (a charity registration number is required); (2) In Scotland: registered with the Office of the Scottish Charity Regulator (OSCR); (3) In Northern Ireland: registered with the Charity Commission for Northern Ireland (CCNI); (4) Overseas charities: HMRC maintains a list of recognised overseas charities that qualify for the IHT exemption — the charity must meet the 'management condition' (controlled by fit and proper persons) and the 'jurisdiction condition' (established in an EU member state — note: post-Brexit, only some overseas charities retain this status; specialist advice is required). Naming charities in a will: include the full registered name and charity registration number to avoid ambiguity. Where a charity has changed its name, merged with another charity, or dissolved, the legacy may fail if not carefully drafted — use a general description clause ('the charity known as [name] or its successor body') as a fallback. Check the Charity Commission register before signing the will to confirm current status.
Pecuniary vs residuary charitable legacies: tax efficiency
There are two main ways to leave a charity legacy in a will: (1) Specific pecuniary legacy: a fixed sum of money ('I give £50,000 to Cancer Research UK'). The sum is paid from the estate before the residue is calculated — the residue (and its IHT calculation) is unaffected by the fixed sum unless the 10% test is applied. A fixed sum may not qualify for the 36% rate if it does not represent 10% of the net estate (which changes with asset values at death). (2) Residuary legacy — percentage of residue: a percentage share of the estate ('10% of my residuary estate to Cancer Research UK'). This ensures the charity's gift always remains at exactly 10% (or whatever percentage you choose) regardless of the estate value at death — making the 36% rate much more reliable. For the 36% rate: use a residuary percentage legacy (not a fixed sum) to ensure the 10% threshold is reliably met. A clause tying the charity percentage to exactly 10% of the net estate (after NRB, reliefs, and other exemptions) achieves the most IHT-efficient result. Using a deed of variation (within 2 years of death) to add a charitable legacy: where the deceased did not leave a charitable legacy in their will, the beneficiaries can redirect part of their inheritance to charity via a deed of variation — potentially qualifying for the s36 reduced rate on the overall estate.
Deed of variation to add a charitable legacy after death
Where no charitable legacy was included in the will, beneficiaries can agree within two years of death to redirect part of the estate to charity using a deed of variation (s142 IHTA 1984). If the redirected amount is at least 10% of the net estate, the s36 reduced rate applies — reducing the IHT rate to 36%. The deed of variation must: (1) Be in writing; (2) Identify the relevant legacy/share being varied; (3) State that s142 IHTA 1984 is to apply (IHT effect); (4) Be signed by the varying beneficiary (the person giving up their share); (5) Be made within two years of death. This is particularly powerful where the residuary beneficiaries are willing to donate 10% of their inheritance — as they may be net-positive after the IHT reduction on their remaining 90%. Executors and beneficiaries should model the numbers before executing a deed of variation — in most estates where the taxable estate is substantial, the 10% charity gift costs the family less than it appears.
Frequently Asked Questions
Does leaving a gift to charity in your will reduce inheritance tax?
Yes — in two ways. (1) Direct exemption: the charitable gift itself is fully exempt from IHT under s23 IHTA 1984 (no limit, no 7-year rule) — reducing the taxable estate pound for pound. (2) Reduced 36% rate: if the charitable gift equals at least 10% of the 'net estate' (estate after NRB and IHT reliefs), the IHT rate on the remaining taxable estate reduces from 40% to 36% (s36 IHTA 1984). Together, these two effects mean the net cost to the family of a charitable gift is often significantly less than the face value of the gift.
What is the 36% inheritance tax rate for charitable legacies?
Where at least 10% of the net estate passes to qualifying charities, the IHT rate reduces from 40% to 36% (s36 IHTA 1984, Finance Act 2012). The 'net estate' for the 10% calculation is the estate after deducting the NRB (£325,000) and any IHT exemptions (spousal exemption, BPR, APR). The reduction from 40% to 36% is a 10% reduction in the IHT rate — on a taxable estate of £675,000, this saves £27,000 in IHT (against a charitable gift that may have cost the residuary beneficiaries much less than £27,000 net). Use a percentage residuary legacy (not a fixed sum) to reliably hit the 10% threshold regardless of estate value at death.
What charities qualify for the IHT charitable exemption?
UK registered charities (registered with the Charity Commission in England and Wales, OSCR in Scotland, or CCNI in Northern Ireland) qualify. Overseas charities in certain jurisdictions may also qualify under HMRC's overseas charities list — specialist advice is needed post-Brexit. Include the full charity name and registration number in the will to prevent ambiguity. Check the charity's registration status before signing — charities can change names, merge, or dissolve.
Can a deed of variation be used to add a charity gift after death?
Yes. Within two years of death, beneficiaries can redirect part of their inheritance to charity using a deed of variation (s142 IHTA 1984). If the redirected amount is at least 10% of the net estate, the 36% reduced IHT rate applies. The deed must be in writing, identify the varied legacy, state s142 IHTA is to apply, and be signed by the varying beneficiary. Beneficiaries can be net-positive after the IHT saving — model the numbers first.
Is a percentage legacy or a fixed sum better for qualifying for the 36% IHT rate?
A percentage of the residuary estate is strongly preferred. A fixed sum (e.g. '£50,000 to charity') may or may not represent 10% of the net estate at the date of death — if the estate value changes, the fixed sum legacy may fall below the 10% threshold, losing the 36% rate. A percentage legacy ('10% of my residuary estate to charity') reliably meets the 10% threshold regardless of the estate value at death — and adjusts automatically. Ideally, express the percentage as a fraction of the net estate after NRB and reliefs, to ensure the threshold is met precisely.
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