Charitable Gifts and Inheritance Tax UK 2026: s23 IHTA Exemption, 36% Reduced Rate, Qualifying Charities, Formula Clauses, and Lifetime Giving
Leaving 10% to charity doesn't cost 10%. The net family cost is a fraction of the gross legacy because the IHT rate on the rest drops from 40% to 36% — and a formula clause ensures you hit the threshold without giving a penny more than necessary.
10% of the BASELINE — Not 10% of the Gross Estate
The 10% charitable threshold for the 36% rate (s36 IHTA) is calculated on the BASELINE estate — the net estate after deducting the NRB/tNRB and other exemptions. Example: estate £1.2m widowed; tNRB+NRB = £650k; baseline = £550k; 10% of baseline = £55k to charity (not £120k). A formula clause in the will automatically calculates this after death.
| Legacy Type | How It Works | IHT Treatment | Example | Planning Note |
|---|---|---|---|---|
| Fixed pecuniary legacy to charity in will | A specific fixed sum (£20,000, £50,000 etc.) left to a named charity in the will. The charity receives this amount before the residue is distributed. | s23 IHTA exempt — the legacy is deducted from the estate before IHT is calculated. Reduces the chargeable estate by the full legacy amount. If ≥10% of baseline goes to charity: s36 IHTA 36% rate applies to the REST of the estate. Risk: a fixed legacy may not achieve exactly 10% of the actual baseline (which varies with estate value at death). Under 10%: misses the 36% benefit. Over 10%: more than necessary given the family the charity is receiving more than needed for the reduced rate. | Estate £900k; NRB £325k. Baseline = £900k − £325k = £575k. 10% of baseline = £57.5k. Fixed legacy £60k (more than 10% of baseline). IHT: (£575k − £60k) × 36% = £515k × 36% = £185.4k. vs no charity: £575k × 40% = £230k. Saving: £44.6k. Net cost: £60k − £44.6k = £15.4k net family cost for £60k to charity. | A formula clause is better than a fixed legacy where the 36% rate is the primary objective — ensures exactly the minimum 10% regardless of estate value. |
| Residuary legacy to charity (percentage of residue) | The will leaves a percentage of the residue (e.g., 10% of residue after specific legacies, debts, costs, and NRB have been paid) to charity. The residue is whatever is left after all specific legacies, debts, and administration expenses. | s23 IHTA exempt on the charitable residue. If the charitable residue = ≥10% of the baseline: s36 IHTA 36% rate. CIRCULAR CALCULATION RISK: if the 36% reduced IHT changes the chargeable estate, the charitable residue itself changes (because the residue is after IHT). This creates a circular calculation — the IHT determines the residue, but the residue determines the charitable percentage, which determines the IHT. The 'iterative calculation' is performed by HMRC. HMRC provides a formula to calculate the IHT in these cases (IHTM45053 — 'appropriate portion'). | Estate £1m; NRB £325k; baseline £675k. Will: 10% of residue to charity; 90% to children. HMRC iterative calculation: charitable legacy = 10% × (estate − NRB − IHT × 90%/100%). Solving: if 36% rate applies, IHT = £675k × 90% × 36% = not straightforward. HMRC IHTM45053 formula resolves the circularity. Result: 36% rate confirmed; both charity and children receive amounts according to the formula. | Percentage of residue clauses are flexible (automatically adjust to estate value) but create circular calculation complexity. A formula clause targeting exactly 10% of the s36 baseline is cleaner. |
| Formula clause targeting exactly 10% of the s36 baseline | The will includes a specifically drafted clause: '10% of the Baseline Amount (as defined in s36 IHTA 1984 and Schedule 1A IHTA 1984) to [charity name]'. The formula clause uses the statutory definition of the baseline directly — ensuring that exactly the minimum 10% always goes to charity, regardless of the estate value at death. This is the most tax-efficient approach where the family wants the 36% rate with the minimum charitable legacy. | s23 IHTA exempt on the 10% baseline amount. s36 IHTA 36% rate automatically applies to the rest of the chargeable estate. No risk of over-gifting (more than 10% of baseline) or under-gifting (missing the 36% threshold). The formula clause is calculated by reference to the ACTUAL baseline after death — valuations, debts, and available exemptions are all factored in. | Estate £1m (at death; actual value may differ from the will's drafting stage). NRB £325k. Baseline = £675k. 10% formula clause = £67,500 to charity. IHT: (£675k − £67.5k) × 36% = £607.5k × 36% = £218.7k. vs no charity: £675k × 40% = £270k. Saving: £51.3k. Net cost: £67.5k − £51.3k = £16.2k net family cost for £67.5k to charity. | This is the recommended structure for families that want the 36% rate benefit with maximum efficiency. The formula clause requires professional drafting (the statutory language is specific). A simple 'I give 10% of my estate to charity' is NOT a formula clause and may not achieve the intended s36 benefit. |
| Lifetime charitable gifts (s23 IHTA — not in will) | Cash, shares, property, or other assets given to a qualifying charity during the donor's lifetime. Immediately exempt from IHT (s23 IHTA) — no PET; no 7yr clock. Reduces the estate immediately by the full gift value. Gift Aid on cash gifts (if donor is a UK income taxpayer): charity reclaims basic-rate tax (25% uplift — for every £1 donated, charity receives £1.25 from HMRC basic rate reclaimation). Higher-rate taxpayer: additional 20% relief in self-assessment (20% × gross gift). Gifts of quoted shares to charity: no CGT on the gain (s257 TCGA 1992); income tax relief at market value on date of gift (if Gift Aid claimed); double benefit — CGT-free AND IHT-exempt. | Lifetime charitable gifts are immediately outside the IHT estate. No IHT at any time. No waiting period. The donor can continue to give to charity throughout their life — each gift is immediately exempt. NOTE: if the donor gives to charity AND directs that the charity must give the money to a non-charitable beneficiary (a 'conditional gift'), HMRC will disallow the charitable exemption (the substance is a gift to the non-charitable beneficiary). | Donor with estate £900k gives £50k to charity in their lifetime. Estate reduces to £850k. IHT saving (if above NRB): £50k × 40% = £20k IHT saved. If the donor had left £50k to charity in their will instead: same IHT saving. Difference: lifetime gift is irrevocable; will legacy can be changed. Lifetime gift also potentially triggers the 36% rate for the estate at death if the will includes a qualifying charitable legacy independently. | For regular charitable giving: use Gift Aid for cash donations (charity gets 25% more from HMRC at no cost to the donor; donor gets income tax relief). For shares: give appreciated shares directly — avoid CGT AND IHT-exempt. For large one-off lifetime gifts to charity: consider a Charitable Incorporated Organisation (CIO) or donor-advised fund for flexibility in timing and allocation. |
Charitable gifts IHT UK 2026. s23 IHTA 1984: gifts to qualifying charities exempt from IHT — during lifetime and on death; unlimited; no cap; lifetime gifts: not PETs (immediately exempt, no 7yr clock). s36 IHTA 1984 and Sch 1A IHTA 1984: 36% reduced rate where ≥10% of 'baseline' passes to qualifying charities; baseline = net estate − NRB (and tNRB if applicable) − spousal/CP exemption (s18) − BPR/APR reliefs (if applicable to baseline calculation, though HMRC typically uses estate net of all exemptions and reliefs in setting the baseline). Three components under Sch 1A IHTA (survivorship estate, settled property, joint property — each component's 10% calculated separately unless the deceased's personal representatives elect to merge them). Qualifying charities: s23 IHTA — charity as defined in the Charities Act 2011 (England and Wales); also Sch 3 IHTA national institutions; also CASCs (community amateur sports clubs — s23A IHTA, from 6 April 2014); also charities established in EU, Norway, Iceland (provided HMRC-recognised — Finance Act 2010 extension; post-Brexit position: charities that met the pre-1 April 2022 conditions may continue; new EU charities need HMRC recognition). Foreign charities: if NOT HMRC-recognised: gift is NOT s23 exempt. HMRC list of recognised non-UK charities at IHTM11157. Formula clause: references s36 IHTA and Sch 1A directly; calculates the minimum charitable legacy needed for the 36% rate based on the actual estate at death; requires professional legal drafting; HMRC accepts formula clauses in wills. Circular calculation for residuary charitable legacy: IHTM45053 — HMRC methodology for calculating IHT where the charitable share is a proportion of residue (which itself depends on IHT, creating circularity); solved by iterative formula. Gift Aid: Income Tax Act 2007 ss413-430; basic rate tax reclaimable by charity (20% of gross gift — i.e., 25% uplift on net cash donation); higher-rate taxpayer relief: additional 20% of gross gift reclaimable in self-assessment; carry-back facility: Gift Aid donations after year-end but before self-assessment filing date can be treated as in prior year. CGT on charitable gifts: s257 TCGA 1992 — no CGT on gifts of qualifying investments to qualifying charities; qualifying investments: shares, debentures, units in a unit trust scheme, shares in an open-ended investment company, foreign equivalents; shares gifted at market value for income tax purposes (Gift Aid or income tax relief on market value). Gift of property to charity: no CGT on non-investment property gifts (s257 covers investments; non-investment gifts: HMRC Extra-Statutory Concession D50 — no CGT on gifts to charity of non-investment property if the disposal proceeds are used entirely for charitable purposes). Donor-Advised Funds (DAF): Charities Aid Foundation (CAF), Prism the Gift Fund — UK equivalents; immediate Gift Aid on contribution; flexible allocation of charitable grants over time. CIOs (Charitable Incorporated Organisations): can be set up as the receiving charity for a specific purpose; useful for family philanthropy with donor involvement in grant-making. HMRC: IHTM11001-11160 (charitable exemptions).
Frequently Asked Questions
Are gifts to charity exempt from inheritance tax?
Yes — gifts to qualifying UK charities are fully exempt from IHT (s23 IHTA 1984). The exemption applies: (1) to lifetime gifts (immediately exempt — no PET, no 7yr clock); and (2) to charitable legacies in wills (deducted from the estate before IHT is calculated). There is no cap on the exemption — a £1m charitable legacy is as fully exempt as a £1,000 one. ADDITIONAL BENEFIT: if ≥10% of the 'baseline estate' (net estate after deducting NRB and other exemptions) is left to qualifying charities, the IHT rate on the rest of the estate reduces from 40% to 36% (s36 IHTA 1984). Qualifying charities: UK-registered charities; also national museums, libraries, universities, and CASCs (s23A IHTA). Foreign charities: only qualify if HMRC-recognised and established in the UK, EU, Norway, or Iceland.
How much do I need to leave to charity for the 36% inheritance tax rate?
You need to leave at least 10% of the 'baseline estate' to qualifying charities to qualify for the 36% reduced IHT rate (s36 IHTA 1984). The baseline estate is the net estate AFTER deducting: the NRB (£325k); the tNRB (if applicable — IHT402); spousal/CP exemptions (s18 IHTA); the charitable legacies themselves. IMPORTANT: the 10% is calculated on the BASELINE — not on the gross estate. Example: widowed person, estate £1.2m, tNRB+NRB = £650k. Baseline = £1.2m − £650k = £550k. 10% of baseline = £55k to charity (NOT 10% of £1.2m = £120k). This makes the 36% rate far more accessible than most people think. A formula clause in the will ensures exactly 10% of the actual baseline is given, regardless of the estate value at death.
Is it worth leaving 10% to charity for the lower IHT rate?
Usually yes — the net family cost is much less than the gross charitable legacy. The family benefits from a 4% reduction on the rest of the chargeable estate. Example: estate £1m; NRB £325k; baseline £675k; 10% = £67.5k to charity. IHT at 36% on rest: £607.5k × 36% = £218.7k. vs no charity (40%): £675k × 40% = £270k. IHT saving: £51.3k. Net cost of charitable legacy: £67.5k − £51.3k saving = £16.2k net. So: the family 'costs' £16.2k net but gives £67.5k to charity and saves £51.3k in IHT. For families with any charitable inclination: the economics are compelling. For families with NO charitable inclination: the net cost (£16.2k) is still a real cost — though modest relative to the estate. Break-even: at 10% of baseline, the family is always slightly worse off in pure cash terms — but the difference is small and the charity benefit is large.
What is a formula clause for charitable giving and IHT?
A formula clause is a will provision that leaves a variable amount to charity — calculated by reference to the exact statutory formula needed to trigger the 36% IHT rate. Rather than leaving a fixed sum (which may miss the 10% threshold or exceed it unnecessarily), the formula clause instructs the executors to pay 'the minimum amount of charitable legacy required to ensure that ≥10% of the baseline estate (as defined in Schedule 1A IHTA 1984) passes to [charity name]'. The formula clause is calculated after death — when the actual estate value, debts, and available exemptions are known. This ensures: (1) exactly the minimum charitable legacy is given (not more); (2) the 36% rate is always triggered; (3) the family retains the maximum non-charitable share. A formula clause requires professional drafting — the statutory language is specific and an informal '10% of my estate' clause may not achieve the same result.
Can I give shares to charity to avoid CGT and IHT?
Yes — gifts of qualifying investments (listed shares, AIM shares, unit trusts, OEICs) to qualifying UK charities are: (1) Exempt from CGT (s257 TCGA 1992) — no capital gains tax on the gain at the date of gift, regardless of how large the gain. (2) Exempt from IHT (s23 IHTA 1984) — immediately outside the IHT estate; no 7yr clock. (3) Eligible for income tax relief (via Gift Aid if cash equivalent, or direct share donation relief). Practical example: shares bought for £10,000, now worth £100,000 (£90,000 gain). Sell and give cash: CGT at 18%/20% on £90,000 gain (up to £18,000 CGT), then IHT on the remaining cash if above NRB. Give shares directly to charity: no CGT (s257); no IHT (s23); charity gets the full £100,000. Net benefit: up to £18,000 CGT saved + IHT saving on the gift amount + income tax relief on the donation. This is one of the most tax-efficient forms of charitable giving available in the UK.
Include a Formula Clause in Your Will — Minimise IHT, Maximise Your Charitable Legacy
A formula clause that targets exactly 10% of the s36 baseline is the most IHT-efficient way to give to charity. WillSafe will kits from £39.99.
View Will Kits from £39.99