Inheritance Tax Charity Exemption UK: Gifts to Charity in Your Will
Quick answer
Under section 23 IHTA 1984, gifts to qualifying charities are wholly exempt from inheritance tax — there is no cap on the amount. The gift is deducted from your estate before IHT is calculated. Better still, if you leave at least 10% of your net estate (after the nil-rate band) to charity, the IHT rate on the rest of your estate drops from 40% to 36% under Schedule 1A IHTA 1984. Done correctly, a charitable legacy can leave your other beneficiaries no worse off — and sometimes better off — than making no gift at all.
Section 23 IHTA 1984: The Charity Exemption
Section 23 of the Inheritance Tax Act 1984 provides that a transfer of value is an exempt transfer to the extent that it is a gift to a qualifying charity. The exemption applies equally to:
- Lifetime gifts — a transfer made during your lifetime to a qualifying charity is an exempt transfer and does not count as a potentially exempt transfer (PET). It exits your estate immediately with no seven-year waiting period.
- Testamentary gifts (will gifts) — a legacy in your will to a qualifying charity is deducted from the value of your estate before the nil-rate band calculation is applied and before any IHT is computed.
There is no cap on the amount. Whether you leave £5,000 or your entire estate to charity, the s.23 exemption covers 100% of the gift. A gift of £500,000 to a qualifying charity in your will reduces the taxable estate by £500,000 — pound for pound.
The practical effect is that the charitable gift is removed from the estate entirely before HMRC touches it. Executors report the gift in the IHT account (form IHT400, schedule IHT418) but no tax is due on the exempt amount. The charity receives the full gift without any deduction.
What Is a Qualifying Charity?
Not every organisation that calls itself a charity qualifies for the s.23 exemption. A charity qualifies if it falls into one of the following categories:
- Registered UK charities — registered with the Charity Commission for England and Wales (charitycommission.gov.uk), the Office of the Scottish Charity Regulator (OSCR), or the Charity Commission for Northern Ireland (CCNI).
- Exempt charities — certain bodies are exempt from registration but remain legally charitable. These include universities and higher-education institutions, national museums (the British Museum, National Gallery, etc.), the National Trust, and certain academies. They qualify automatically under Schedule 3 Charities Act 2011.
- Community Amateur Sports Clubs (CASCs) — registered with HMRC under the CASC scheme. The registration number issued by HMRC serves the same function as a charity number.
- Excepted charities — small charities that are not required to register (typically below the income threshold of £5,000 per year) but are nonetheless legally charitable under the Charities Act 2011. These are rarer and care should be taken to establish their status.
Overseas charities — important 2025 update: From Finance Act 2010, certain charities established in EU/EEA member states (including Norway and Iceland) qualified under s.23 IHTA 1984. Following the Autumn Budget 2024, this overseas charity relief was abolished from April 2025. From that date, only charities established and regulated in the United Kingdom qualify. Any will referencing a non-UK overseas charity as a beneficiary should be reviewed if you wish the s.23 exemption to apply.
The 36% Reduced IHT Rate: The 10% Charitable Giving Rule
Over and above the s.23 exemption, Finance Act 2012 introduced a reduced rate of IHT for estates where a sufficient proportion is left to charity. This is now contained in section 7A and Schedule 1A IHTA 1984.
The rule is straightforward: if the aggregate value of charitable legacies equals or exceeds 10% of the baseline amount, the IHT rate on the chargeable (non-exempt) estate reduces from 40% to 36%.
The baseline amount is calculated as follows:
- Start with the gross value of the estate at death (worldwide assets for UK-domiciled individuals).
- Deduct liabilities, debts, and funeral expenses.
- Deduct the available nil-rate band (£325,000 in 2026/27, frozen until April 2028).
- Deduct any available residence nil-rate band (£175,000 in 2026/27, frozen until April 2031).
- Deduct any spousal/civil partner exemption.
- The result — before the charitable gift is deducted — is the baseline amount.
The 10% threshold is applied to this baseline, not to the gross estate. This is an important distinction: on a very large estate, the threshold is a larger absolute figure, but on a modest estate just above the nil-rate band, the 10% threshold can be a relatively small sum.
- Estate value at death: £800,000
- Less: debts and funeral expenses: £0
- Less: available nil-rate band: £325,000
- Less: residence nil-rate band: £0 (no qualifying property to direct descendants)
- Less: spousal exemption: £0 (no surviving spouse)
- Baseline amount: £475,000
- 10% of baseline: £47,500
- If the will leaves £47,500 or more to qualifying charities, the IHT rate drops to 36% on the chargeable estate.
The table below shows why the 10% rule can benefit your non-charitable beneficiaries even after the larger charitable gift:
| Scenario | Charitable gift | IHT rate | IHT bill | Non-charitable beneficiaries receive |
|---|---|---|---|---|
| No charitable gift | £0 | 40% | £190,000 | £610,000 |
| Gift below 10% (£30,000) | £30,000 | 40% | £178,000 | £592,000 |
| Gift at 10% threshold (£47,500) | £47,500 | 36% | £171,000 | £581,500 |
Illustrative figures. Estate £800,000, NRB £325,000, baseline £475,000. IHT calculated on chargeable estate (£475,000 minus charitable gift) at the applicable rate.
In this example, by increasing the charitable gift from £30,000 to £47,500, the family receives £581,500 instead of £592,000 — a difference of only £10,500 — while the charity receives £17,500 more. At higher estate values, the crossover point occurs sooner and the 36% rate saving can fully or more than offset the larger gift.
How to Leave a Charitable Legacy in Your Will
There are three principal forms a charitable legacy can take, each with different drafting implications:
(a) Specific pecuniary legacy — a fixed sum
Example: “I give the sum of £10,000 to Cancer Research UK (Registered Charity No. 1089464) for its general charitable purposes.”
A fixed sum is predictable and easy to administer. The risk is that as your estate value changes over time, the fixed sum may drift above or below the 10% threshold. If the threshold matters to you, use a percentage clause instead or include an uplift mechanism.
(b) Specific non-cash gift — shares, property, or other assets
Example: “I give my shareholding in XYZ plc to the British Heart Foundation (Registered Charity No. 225971).”
For testamentary gifts of assets held at death, there is no capital gains tax: the CGT base cost is rebased to market value at the date of death. The charity receives the shares free of both IHT and CGT. For lifetime gifts of appreciated assets, CGT is triggered (though IHT is still zero) — this is a significant distinction if you are considering making the gift during your lifetime rather than by will.
(c) Residuary legacy — a percentage of what remains
Example: “I give 10% of my residuary estate to Age UK (Registered Charity No. 1128267) for its general charitable purposes. If that charity has ceased to exist at the date of my death or has amalgamated with another body, I direct my executors to apply this gift to a charity with similar objects as they in their absolute discretion see fit.”
A percentage of residue is usually the most flexible approach: it automatically adjusts as your estate grows or shrinks, and is the most reliable way to stay at or above the 10% threshold over time. The cy-près clause (the “if that charity has ceased to exist” provision) is essential to prevent the gift lapsing if the charity dissolves before your death.
The Opt-In, Opt-Out, and Merging Provisions under Schedule 1A
Schedule 1A IHTA 1984 contains detailed rules about how the 10% test operates. The key points are:
- Three separate components: The 10% test is applied separately to (i) survivorship property (jointly owned assets passing by survivorship), (ii) settled property (trust assets in which the deceased had an interest in possession), and (iii) the general estate (everything else). A component qualifies for the 36% rate only if its own charitable gifts meet the 10% threshold of that component’s baseline amount.
- Merging election: Executors and/or trustees can elect under paragraph 7 of Schedule 1A to merge two or more components together. This allows the aggregate charitable gifts across merged components to be measured against the aggregate baseline, which can tip estates over the 10% threshold where one component alone would not qualify.
- Opt-out: Under paragraph 7(2), a beneficiary who would receive a smaller net benefit under the 36% rate (because their share of the estate is reduced by the larger charitable gift) can elect to opt out. If they opt out, the 36% rate does not apply and the standard 40% rate is used — the charity still receives its gift, but the IHT saving is foregone. Opt-out elections must be made within two years of the date of death (or such longer period as HMRC allows under s.239 IHTA 1984).
These provisions reflect the reality that in some cases the 36% rate produces a marginally worse outcome for one beneficiary class. In practice, opt-outs are uncommon, and the merging election is the more frequently used tool in complex estates.
Practical Planning Points
Review your will regularly as estate values change
The 10% threshold is a moving target. A fixed pecuniary legacy that comfortably exceeds 10% of the baseline when the will is written may fall below it a decade later if your estate has grown substantially. Review your will — or at least the charitable gift clause — every three to five years, or after any significant change in your financial position.
The nil-rate band freeze and the 10% threshold
The standard nil-rate band is frozen at £325,000 until April 2028. As asset values (particularly residential property) continue to rise, more estates are being drawn into the IHT net and the absolute value of the baseline amount is increasing. This means the 10% threshold is also increasing in cash terms. Estates that currently sit just below the IHT threshold may cross it — and cross the 10% charitable gift threshold simultaneously — in the next few years.
Heritage property: a different regime
Conditional exemption for heritage property (listed buildings, works of art, historic collections) under s.30 IHTA 1984 is a separate relief from the s.23 charitable exemption. Heritage property relief grants a conditional exemption in exchange for undertakings to maintain the property and allow reasonable public access. A gift of heritage property to a qualifying museum or heritage body is likely to attract the s.23 exemption directly, but specific advice should be sought for high-value heritage items.
GiftAid does not apply to will legacies
GiftAid under s.25 Finance Act 1990 allows charities to reclaim basic-rate income tax on lifetime donations from UK taxpayers. It does not apply to testamentary gifts. A legacy in your will is not a “qualifying donation” for GiftAid purposes — the charity cannot reclaim any tax in addition to the IHT exemption. The two systems are entirely separate. The IHT exemption is the relevant relief for will gifts; GiftAid is the relevant relief for lifetime cash donations from income.
Frequently asked questions
Does a gift to charity in my will reduce my estate's IHT?▼
Yes — in two distinct ways. First, the charitable gift is deducted from your estate before IHT is calculated, so it never forms part of the taxable estate (s.23 IHTA 1984). Second, if your total charitable gifts equal or exceed 10% of your net baseline amount, the IHT rate on the remainder of your estate drops from 40% to 36% under Schedule 1A IHTA 1984. Both reliefs apply simultaneously: the gift itself is exempt, and the remaining estate is taxed at a lower rate.
What is the 10% charitable giving rule for IHT?▼
If the aggregate charitable legacies in your will equal at least 10% of the 'baseline amount' — broadly your net estate minus the available nil-rate band, residence nil-rate band, spousal exemption, debts, and funeral expenses — the IHT rate on the chargeable estate reduces from 40% to 36%. This 4-percentage-point reduction was introduced by Finance Act 2012 and is now codified in s.7A and Schedule 1A IHTA 1984. On a large estate the saving to your other beneficiaries can exceed the value of the charitable gift itself.
Can I leave my house to charity in my will?▼
Yes. You can leave any asset — including your home — to a qualifying charity free of IHT. A specific gift of real property to a charity is a testamentary transfer and qualifies for the s.23 exemption in full. There is no capital gains tax on assets that pass under a will (assets are rebased to their value at the date of death), so neither the estate nor the charity faces a CGT charge on the transfer of the property itself. If you are considering leaving your home to charity rather than to a direct descendant, also consider whether this affects your availability of the residence nil-rate band (RNRB), which only applies where the property passes to lineal descendants.
What if a charity I named in my will no longer exists?▼
If a charity ceases to exist, is wound up, or merges before you die, a gift to it in your will may lapse — meaning it falls back into residue and loses the IHT exemption. To prevent this, include a cy-près clause: an instruction that if the named charity no longer exists, your executors must apply the gift to a charity with similar objects. Courts can also apply the cy-près doctrine where a successor charity has taken on the work of the dissolved one, but an express clause removes any ambiguity. Always include the charity's registered charity number alongside its full name.
Does the charity exemption apply to lifetime gifts too?▼
Yes. Section 23 IHTA 1984 exempts both testamentary gifts (gifts made by will) and inter vivos gifts (lifetime transfers) to qualifying charities. A lifetime gift to charity is an exempt transfer: it does not count as a potentially exempt transfer (PET) and never enters the seven-year taper calculation. It is immediately outside your estate for IHT purposes. For large lifetime gifts of appreciated assets (shares, property), also consider capital gains tax — unlike death transfers, CGT is not rebased on lifetime gifts, so a lifetime gift may trigger a CGT charge even though IHT is zero.
Can I change my charitable legacy after making my will?▼
Yes — provided you have testamentary capacity, you can revoke or alter any legacy in your will at any time before death. You can either execute a new will that replaces the old one entirely, or add a codicil — a formal amendment that must be signed and witnessed with the same formalities as a will (two independent witnesses present simultaneously). A codicil can add, increase, reduce, or remove a charitable gift. If you add a charitable legacy via codicil that takes your total charitable giving to 10% or more of the baseline amount, the 36% reduced IHT rate will apply. Informing a charity of a legacy is not legally binding — you retain full freedom to change your mind.
Leave a Charitable Legacy in Your Will
WillSafe’s will kit makes it straightforward to include a charitable legacy — whether a fixed sum, a percentage of residue, or a specific asset. Clear guidance is included on drafting a cy-près clause and calculating whether your gift reaches the 10% threshold for the reduced 36% IHT rate. Legally drafted for England and Wales.
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