IHT Charitable Exemption UK (2026): Gifts to Charity in a Will, IHTA 1984 s.23, and the 10% Reduced Rate

Section 23 of the Inheritance Tax Act 1984 provides an UNLIMITED exemption from IHT for transfers to qualifying charities, whether made during a person's lifetime or on death through a will: (1) THE BASIC RULE (IHTA 1984 s.23(1)): a transfer of value is EXEMPT from IHT to the extent that the value transferred is attributable to property that is given to a BODY ESTABLISHED FOR CHARITABLE PURPOSES ONLY. There is no upper limit — a £10 million charitable legacy is as fully exempt as a £1,000 one; (2) WHICH TRANSFERS QUALIFY: (a) Specific legacies in a will — 'I give £50,000 to Cancer Research UK'; (b) Residuary gifts in a will — 'I give the whole of my residuary estate to [charity]'; (c) Percentage of the estate — 'I give 10% of my net estate to [charity]'; (d) Lifetime gifts to charity — also exempt from IHT; PETs and CLTs to charities are immediately exempt (not subject to the 7-year rule); (3) WHAT 'CHARITABLE PURPOSES ONLY' MEANS: the charity must be: (a) Established for charitable purposes only (prevention of poverty; education; religion; health; arts; environment; animal welfare; human rights; sport [within Charities Act definition]; community development; and other purposes beneficial to the community); (b) Based in the UK, EU, Isle of Man, Channel Islands, or Norway (or a country with IHT treaty provisions); (c) Registered with the Charity Commission (England and Wales) or HMRC Charities (if below the registration threshold); (4) NON-UK CHARITIES: charities based in the EU/EEA were brought within the exemption by IHTA 1984 s.23(6) — this applies to qualifying charities in EU member states, Norway, Iceland, and Liechtenstein. Post-Brexit this provision was retained. However, charities in many other countries (USA; Australia) do NOT qualify for the UK IHT exemption; (5) HMRC CHARITY REFERENCE: it is good practice to include the charity's registered charity number in the will to ensure it is correctly identified. HMRC maintains a register of charities recognised for tax purposes.

The 10% charitable legacy rule, introduced by Finance Act 2012 (now IHTA 1984 Schedule 1A), allows the IHT rate on the TAXABLE PART of the estate to be reduced from 40% to 36% where at least 10% of the 'net estate' is left to charity: (1) THE RULE IN OUTLINE: if a person leaves AT LEAST 10% of their 'net estate' (estate after deducting NRB and any other reliefs) to qualifying charities, the IHT rate on the REMAINING taxable estate (the non-charitable part) is reduced from 40% to 36%. The charitable gift itself is still 100% exempt; (2) WHAT IS THE 'NET ESTATE' FOR THIS PURPOSE: the 'baseline amount' is calculated as: (estate value − nil rate band − RNRB − reliefs − exemptions) = baseline; 10% of the baseline = the 'charitable amount' required to trigger the 36% rate. Example: estate = £1.5m; NRB = £325k; RNRB = £175k; baseline = £1m; 10% of baseline = £100k charitable gift required; (3) IF THE 10% THRESHOLD IS MET: (a) The charitable gift: 100% exempt from IHT; (b) The taxable residue: taxed at 36% (not 40%); (c) SAVING: on a £1m taxable residue, 36% = £360k IHT vs 40% = £400k — saving of £40k. The £100k charitable gift 'costs' £60k net (£100k gift minus £40k IHT saving); (4) THE THREE COMPONENTS — SURVIVORSHIP, SETTLED PROPERTY, JOINTLY OWNED: the estate is divided into UP TO THREE SEPARATE COMPONENTS: (a) The survivorship estate (property passing by survivorship — joint tenants); (b) The settled property component (trust assets where the deceased had an IIP); (c) The general component (the remainder of the estate). The 10% test is applied separately to EACH component unless the trustees 'merge' components by election; (5) MERGING COMPONENTS: the personal representatives (and trustees of any settled property) can ELECT TO MERGE the components so the 10% test is applied to the combined amount — this can make it easier to qualify for the reduced rate; (6) WHAT IF THE GIFT IS CLOSE BUT NOT QUITE 10%: if the charitable gift is between 4% and 10% of the baseline, the PRs can OPT IN to the reduced rate by increasing the charitable gift to 10% (using the deceased's residue). This only makes sense if the IHT saving exceeds the extra charitable gift cost. HMRC provide a calculator.

The range of qualifying recipients for the IHT charitable exemption is wider than many people realise: (1) REGISTERED CHARITIES (ENGLAND AND WALES): any charity registered with the Charity Commission for England and Wales automatically qualifies. Check registration at register-of-charities.charitycommission.gov.uk. Registration number should be included in the will; (2) EXCEPTED AND EXEMPT CHARITIES: some charities are not required to register with the Charity Commission but still qualify for the IHT exemption — these include certain religious organisations; universities; NHS charities; armed forces charities. They qualify under the 'established for charitable purposes only' test even without registration; (3) SCOTTISH AND NORTHERN IRISH CHARITIES: charities registered with the Office of the Scottish Charity Regulator (OSCR) or the Charity Commission for Northern Ireland (CCNI) also qualify; (4) COMMUNITY AMATEUR SPORTS CLUBS (CASCs): CASCs registered with HMRC (not with the Charity Commission) qualify for a SEPARATE exemption under IHTA 1984 s.24A, introduced by Finance Act 2002. The CASC must be registered with HMRC's CASC register. A gift to a registered CASC is wholly exempt from IHT; (5) POLITICAL PARTIES (IHTA 1984 s.24): gifts to qualifying political parties are also exempt from IHT — but the conditions are strict: the party must have at least 2 MPs elected at the last general election (or 1 MP and 150,000+ votes across all constituencies). This is a separate provision from the charitable exemption; (6) NATIONAL HERITAGE BODIES (IHTA 1984 s.25): gifts to certain national heritage bodies (national museums; the National Trust; universities' museums) are conditionally exempt from IHT; (7) WHAT DOES NOT QUALIFY: (a) Overseas charities outside the qualifying countries; (b) Non-registered bodies that are not established for charitable purposes; (c) Gifts to individuals even for charitable purposes — the gift must be to the charity itself; (d) A charitable trust set up in the will — this qualifies only if it genuinely meets the definition of charitable purposes; an imprecise charitable purpose may fail.

Poorly drafted charitable legacies create administration problems, delay the charitable payment, and may fail to achieve the intended IHT relief: (1) INCLUDE THE REGISTERED CHARITY NUMBER: always include the registered charity number alongside the charity's name. Charity names can be similar or change; the registration number is unique and permanent. Example: 'I give £50,000 to Cancer Research UK (registered charity number 1089464)'; (2) TYPES OF CHARITABLE LEGACY: (a) PECUNIARY LEGACY: a fixed sum — 'I give £20,000 to [charity]'. Simple and certain; (b) SPECIFIC LEGACY: a specific asset — 'I give my shareholding in XYZ plc to [charity]'. The charity takes the asset in specie and can sell it; (c) RESIDUARY LEGACY: 'I give the whole (or a percentage) of my residuary estate to [charity]'. This is the most common form for larger charitable intentions; (d) PERCENTAGE OF RESIDUE: 'I give 10% of my net residuary estate to [charity]' — useful for triggering the 36% reduced rate; (3) FAILSAFE CLAUSE — CHARITY CEASING TO EXIST: include a 'failsafe' provision — if the named charity ceases to exist by the date of death, the gift should pass to a similar charity or to a named backup. Without a failsafe, a gift to a dissolved charity may fail and fall into residue; (4) GIFT IN SPECIE — HMRC SHARE VALUATION: where a specific asset (shares; property) is given to a charity, the executor may need to agree a valuation with HMRC Share Valuation (for unquoted shares) or HMRC VG (for property). For listed shares, use the lower of the two prices shown on the Stock Exchange Daily Official List (SEDOL) plus one quarter of the difference between them; (5) DEED OF VARIATION — CREATING A CHARITABLE LEGACY AFTER DEATH: a beneficiary who has inherited assets can execute a deed of variation within 2 years of death to divert the inheritance (or part of it) to charity. The gift is then treated as made from the deceased's estate — both the IHT exemption and the potential 36% rate apply. This allows families to create or increase a charitable legacy retrospectively; (6) THE 10% CALCULATION IN THE WILL: where the drafter wants to ensure the 10% threshold is met exactly, use language like 'I give 10% of the net estate (as defined for the purposes of Schedule 1A IHTA 1984) to [charity]'. Avoid rounding that might fall short of 10%.

The order in which IHT reliefs and exemptions are applied affects the charitable legacy and the 10% calculation: (1) ORDER OF RELIEFS FOR IHT PURPOSES: HMRC applies reliefs in a specific order: (a) First: specific exemptions (spouse/civil partner exemption — IHTA 1984 s.18; charity exemption — s.23; political party — s.24; CASC — s.24A; national heritage — s.25); (b) Then: reliefs that reduce the value of specific assets (BPR; APR); (c) Then: nil rate band and transferable NRB; (d) Then: residential nil rate band (RNRB) and transferable RNRB; (2) INTERACTION WITH THE SPOUSE EXEMPTION: the surviving spouse exemption (IHTA 1984 s.18) is unlimited for UK-domiciled surviving spouses. Where a will leaves assets to both a surviving spouse AND a charity: (a) The charitable gift is exempt under s.23; (b) The spouse's gift is exempt under s.18; (c) IHT is only payable on what falls outside both exemptions; (3) INTERACTION WITH NRB AND RNRB: the charitable exemption reduces the GROSS estate (the total before applying NRB). The NRB and RNRB are then applied to the REMAINING taxable estate: (a) Charitable gift of £200k from a £1m estate: £800k taxable; NRB £325k; RNRB £175k; taxable above = £300k; IHT at 40% = £120k; (b) Without the charitable gift: £1m taxable; NRB+RNRB = £500k; taxable = £500k; IHT = £200k; saving by charitable gift = £80k (£200k gift 'costs' only £120k net — saves £80k IHT); (4) THE 10% REDUCED RATE — BASELINE CALCULATION: the 'baseline amount' (10% of which determines if the 36% rate applies) is calculated AFTER deducting NRB, RNRB, reliefs (BPR; APR), and spouse exemption — but BEFORE deducting the charitable gift itself. This means the charitable gift must be at least 10% of a relatively small amount (the net estate after all other reliefs), making the threshold easier to meet for most estates; (5) PRACTICAL PLANNING — COORDINATING ALL RELIEFS: for maximum efficiency, review the interaction of all reliefs before drafting the will. A combination of NRB transfer + RNRB + charitable legacy can reduce IHT dramatically — sometimes to near zero for a moderately sized estate.