10% Charity Gift and Inheritance Tax UK (2026): How Leaving 10% to Charity Reduces IHT to 36%

The 36% reduced IHT rate was introduced by the Finance Act 2012 and is now contained in IHTA 1984 s.7(4) and Schedule 1A. The rule is: if 10% or more of the 'baseline amount' (a component of the net estate, explained below) is left to charity, the IHT rate on the chargeable estate is reduced from 40% to 36%. The relief applies to deaths on or after 6 April 2012: (1) THE BASIC MECHANICS: the IHT rate on the chargeable part of the estate is reduced from 40% to 36% if the qualifying charitable donation(s) meet or exceed 10% of the baseline amount. The gift to charity itself remains 100% exempt from IHT (IHTA 1984 s.23), the 36% rate reduces the IHT on the remaining chargeable estate; (2) WHAT IS THE 'BASELINE AMOUNT'?: the baseline amount is calculated for each 'component' of the estate separately (see FAQ on components). For a simple estate with one component: Baseline amount = the net value of the component BEFORE deducting the charitable gift, AFTER deducting: (a) the nil-rate band (£325,000 in 2025-26); (b) any transferable nil-rate band; (c) the Residence Nil-Rate Band (RNRB) where applicable (up to £175,000; RNRB transferable from deceased spouse). Example: gross estate £700,000; NRB used = £325,000; RNRB = £175,000; Baseline amount = £700,000 − £325,000 − £175,000 = £200,000. 10% of baseline = £20,000. If the charitable gift is £20,000 or more, the 36% rate applies; (3) THE BENEFIT TO THE FAMILY: the 36% rate reduces the IHT by 4 percentage points on the chargeable estate (excluding the charity gift). In the example above: without 10% charity gift: chargeable estate = £180,000 (£200,000 − nil if no gift); IHT at 40% = £72,000 family receives £480,000 + charity £0. With £20,000 charity gift: chargeable estate = £180,000 (£200,000 − £20,000 gift); IHT at 36% = £64,800 family receives £495,200 − actually...let me work this through carefully. With gift: charity receives £20,000; chargeable estate = £200,000 − £20,000 = £180,000; IHT at 36% = £64,800; family net estate = £175,000 − no wait: residue of £700,000 − NRB&RNRB savings applied − £20,000 charity − IHT £64,800 = £700,000 − £500,000 NRB+RNRB exempt − £20,000 charity − £64,800 IHT. In short: the family receives £115,200 from the chargeable £180,000. The cost of the £20,000 charity gift to the family is only £4,800 less than without the charity gift and without the 36% rate (£72,000 − £64,800 − £20,000 cost = net difference £7,200 in family's favour = they get MORE even after the gift). Often, the IHT saving more than compensates the charity gift; (4) THE KEY INSIGHT: the charity gift partly 'pays for itself' through the IHT saving. The exact saving depends on the estate size and the amount of the charitable gift, at 10% of baseline exactly, the family often comes out at least neutral. Above 10%, the charitable gift costs more than the IHT saving; below 10%, the reduced rate does not apply.

IHTA 1984 Schedule 1A divides the estate into up to three 'components', and the 10% charity test is applied separately to each component: (1) THE THREE COMPONENTS: (a) SURVIVORSHIP COMPONENT: jointly-owned property that passes by right of survivorship (not through the will). For a joint tenant's half share of the matrimonial home, this forms the survivorship component; (b) SETTLED PROPERTY COMPONENT: property in which the deceased had a beneficial interest in possession (an IPDI/interest in possession trust), this forms the settled property component; (c) GENERAL COMPONENT: all other assets in the estate, the main estate (savings; investments; solely-owned property; anything passing under the will or intestacy); (2) THE 10% TEST IS APPLIED PER COMPONENT: the charitable gift must meet the 10% threshold in respect of the component to which it is attributed. If the will directs a charity gift from the 'general component' (most common), only the general component attracts the 36% rate. The survivorship component and settled property component (if any) may still be charged at 40% if no qualifying gift is attributed to them; (3) MERGING COMPONENTS (ELECTION): the Personal Representatives can elect to merge two or more components and treat them as a single component for the 10% test. This can be advantageous where: (a) the charity gift from the general estate does not reach 10% of the general component alone, but DOES reach 10% of the merged general + survivorship components; (b) merging avoids running the calculation twice; (c) the election is made jointly by the PRs on HMRC Form IHT430. The election must be made within 2 years of death (the usual IHT amendment period); (4) PRACTICAL CONSEQUENCE OF COMPONENTS: most estates are 'single component' estates (all general component, no survivorship joint tenancy passing outside the will; no settled property), in that case, the 10% test applies to the whole general component and the calculation is straightforward as illustrated above; (5) EXAMPLE WITH TWO COMPONENTS: estate includes (a) jointly-owned house (survivorship component), deceased's half-share £200,000 gross; (b) general estate £600,000. Will leaves £30,000 to charity from the residuary estate. General component baseline: £600,000 − applicable NRB on general component (say £162,500, half of NRB allocated to general component) = £437,500. 10% of £437,500 = £43,750. The £30,000 charity gift is less than 10% of general component, 36% rate does NOT apply to general component. PRs can elect to merge the two components. Merged baseline: £800,000 − £325,000 NRB = £475,000. 10% = £47,500. £30,000 < £47,500, still does not reach 10% of merged component. No 36% rate applies. Increase charity gift to £47,500+ in the merged scenario to qualify.

Whether the 10% charitable gift 'saves money' for the family depends on the estate composition. Here is a worked example that demonstrates the typical case: (1) EXAMPLE ESTATE: single person; estate = £600,000; NRB = £325,000 (no RNRB, leaving to nephews, not direct descendants). Chargeable estate (without charity gift) = £600,000 − £325,000 = £275,000. IHT at 40% = £110,000. Family receives = £165,000 from chargeable estate (+ £325,000 NRB estate = £490,000 net). Charity receives = £0; (2) WITH 10% CHARITY GIFT: baseline = £275,000. 10% of baseline = £27,500. The will leaves £27,500 to charity. Chargeable estate (after charity gift) = £275,000 − £27,500 = £247,500. IHT at 36% = £89,100. Total paid out from chargeable estate: £27,500 (charity) + £89,100 (IHT) = £116,600. Family receives from chargeable estate = £275,000 − £116,600 = £158,400. COMPARISON: without charity gift: family receives £165,000 from chargeable estate. With £27,500 charity gift: family receives £158,400 from chargeable estate. The family has £6,600 less than without the gift, but the charity receives £27,500. The charity gift costs the family only £6,600 in real terms (the IHT saving absorbs £20,900 of the £27,500 gift); (3) WHERE THE FAMILY BREAKS EVEN: at the 10% of baseline level, the family always loses a small amount, but the amount 'lost' per pound given to charity is only ~24p per £1 (not 60p per £1 as it would be from a non-charitable legacy at 40% IHT). For higher-rate IHT estates with RNRB and large chargeable estates, the break-even analysis can be even more favourable; (4) WHERE THE 36% RATE PAYS FOR ITSELF COMPLETELY: the 36% rate becomes fully 'free' for the family when the chargeable estate is large enough that the 4% reduction on the full chargeable estate exceeds the 10% charity donation. This occurs when: 4% × chargeable estate > 10% × baseline. Since chargeable estate ≈ baseline (the charity gift is included in the baseline), this simplifies to: 4% > 10%, which is never true. So strictly the family always 'pays' something for the charity gift. However, the saving is significant and many testators choose to make the gift for a combination of altruistic and tax reasons; (5) DISCRETION TO GIVE MORE: the 36% rate applies as long as the charitable gift is at least 10% of the baseline. Giving more than 10% increases the charity amount without any further rate reduction. The family continues to pay 36% on the remaining chargeable estate regardless of whether the charity receives 10% or 50%.

To ensure the 36% IHT rate applies, the will must be structured to make a charitable gift that meets the 10% of baseline test: (1) FIXED SUM GIFT: a fixed charitable legacy (e.g. £50,000 to Cancer Research UK) will qualify for the 36% rate if the fixed sum equals or exceeds 10% of the baseline at the date of death. However, because the baseline depends on the estate value at death, a fixed legacy may end up being less than 10% if the estate is larger than expected, losing the 36% benefit; (2) PERCENTAGE LEGACY (RECOMMENDED): the safest approach is to leave a percentage of the estate to charity, specifically 10% of the baseline amount or residuary estate. A will clause stating 'I give 10% of the net estate to [charity]' will always qualify for the 36% rate regardless of estate value fluctuations. The solicitor drafting the will should use precise language aligned with the baseline amount definition in Schedule 1A; (3) FORMULAIC CLAUSE ('CHARITY ENHANCER'): specialist will draftsmen sometimes use a formulaic clause that automatically adjusts the legacy to ensure it is exactly at the level that maximises net family benefit, the 'merlin clause' or 'charity enhancer'. This calculates the optimal charity gift at the point of death accounting for NRB, RNRB, estate value, and IHT savings. It ensures the 10% threshold is met with mathematical precision; (4) USING IHT430 ELECTION FORM: if the estate does not automatically qualify on one component, PRs can use the component merging election (HMRC Form IHT430) to merge components and potentially qualify. This is a post-death administrative election, it does not require amendment to the will; (5) CHECK THE CHARITY IS QUALIFYING: the charity receiving the gift must be a qualifying charity for IHTA 1984 s.23 purposes: registered in the UK; or a UK-established charity with purposes qualifying under CRCA 2011; or an EU/EEA equivalent charity recognised before Brexit. HMRC has a list of qualifying charities, verify the registration before including the charity in the will. Community Amateur Sports Clubs (CASCs) registered with HMRC also qualify.

Yes, a Deed of Variation can redirect assets to charity after death in a way that qualifies for the 36% IHT rate: (1) HOW A DEED OF VARIATION WORKS: under IHTA 1984 s.142, a beneficiary can redirect their inheritance to charity (or any other recipient) by deed of variation within 2 years of death. The variation is treated as if the deceased had made the charitable gift directly in their will. The IHTA 1984 s.23 charity exemption then applies to the redirected amount; (2) THE 36% RATE AND DEED OF VARIATION: if the deed of variation redirects sufficient assets to charity to meet the 10% of baseline test, the 36% reduced IHT rate can apply. HMRC has confirmed that charitable gifts made by deed of variation DO qualify for the 36% rate, the variation is treated as the deceased's gift for all IHT purposes; (3) PRACTICAL USE CASES: (a) The will did not include a charity gift (or included an insufficient gift) and the beneficiaries wish to retrospectively qualify for the 36% rate; (b) The estate has grown larger than anticipated and the original charity legacy is now less than 10% of baseline, a deed of variation increases the gift to the qualifying threshold; (c) The beneficiaries themselves want to give to charity and the deed of variation allows them to do so in the most tax-efficient manner (redirect from the estate rather than giving from inherited money); (4) KEY CONDITIONS FOR A DEED OF VARIATION: (a) must be in writing; (b) signed by the varying party (the beneficiary giving up their interest); (c) must be made within 2 years of death; (d) must contain the statutory statement that the parties intend it to have effect for IHT purposes (IHTA 1984 s.142(3)); (e) cannot have been made for consideration (money or money's worth); (5) CGT AND DEEDS OF VARIATION: redirecting assets to charity by deed of variation is also CGT-free for the charity (charities are exempt from CGT). The beneficiary does not trigger a CGT event by varying their interest in the estate, the variation is treated as if the deceased had made the gift. This double tax efficiency (IHT exemption via s.23 + CGT exemption for charity + 36% rate on remaining estate) makes charitable deeds of variation a very powerful post-death planning tool.