Are Gifts to Charity Free of Inheritance Tax?

Any gift left in a will to a registered charity is exempt from inheritance tax, in the same way that gifts to a spouse or civil partner are exempt. This means the value of a charitable gift is deducted from the estate before working out how much inheritance tax, if any, is due on the rest.

This applies to charities registered in the UK, and there are equivalent provisions for some other qualifying bodies, but it is worth checking that an intended recipient is a registered charity, particularly for smaller or less well-known organisations, to make sure the exemption actually applies.

Beyond the basic exemption, there is a further incentive: if 10% or more of a person's net estate is left to charity, the rate of inheritance tax charged on the remaining taxable estate is reduced from the standard 40% to 36%. This can produce a meaningful saving for the non-charitable beneficiaries, on top of the fact that the charitable gift itself was never going to be taxed anyway.

The 'net estate' used for this calculation is broadly the value of the estate after deducting debts, funeral expenses, exemptions such as the spouse exemption, and the available nil rate band, but before deducting the charitable gift itself. This calculation is more involved than it sounds, and getting it wrong can mean an estate narrowly misses qualifying for the reduced rate.

Because the 10% test is based on a specific definition of the net estate, rather than simply 10% of everything a person owned, it is easy to miscalculate, particularly where an estate includes property, joint assets, or assets that pass outside the will, such as jointly owned property or certain pensions. An estate that looks like it comfortably clears the 10% threshold on a simple back-of-envelope calculation may not actually do so once the correct definition is applied.

Some people choose to leave a fixed percentage of their estate to charity specifically to meet this threshold, using formula clauses in their will that automatically calculate the right amount rather than a fixed sum, since a fixed sum decided years in advance may no longer represent 10% by the time the person dies.

There is no single right way to leave money to charity in a will. Some people leave a specific sum, others leave a percentage of their residuary estate, and some leave a specific item or asset. Each approach has different implications for tax and for how much charities actually receive if the value of the estate changes between when the will is written and when it takes effect.

Whichever approach is chosen, it helps to name the charity clearly and, ideally, to include its registered charity number, to avoid any confusion about which organisation was intended, particularly where similarly named charities exist.

My Posh Will is an online guided will service for England and Wales that lets you include charitable gifts alongside gifts to family and friends. A single will costs £69 and mirror wills cost £89, both one-off payments with lifetime access, and the guided process helps you record charitable gifts clearly.

If you specifically want to structure your estate to qualify for the reduced 36% rate, or your estate includes assets that make the 10% calculation more complicated, use our suitability check, as this is an area where a solicitor or tax adviser can add real value and help avoid the gift narrowly missing the threshold.