Charitable Donation and Inheritance Tax Relief
Private Client
Updated
2nd September 2025
2nd September 2025
A little-known but highly valuable Inheritance Tax (IHT) relief exists when charitable donations are made from an estate. Rather than being a tax that is paid, this relief actually reduces the overall rate of IHT paid on the remainder of the estate, potentially benefiting both the charity and other beneficiaries.
The Reduced Inheritance Tax Rate for Charitable Donations
Normally, Inheritance Tax is charged at 40% on the value of an estate above the available nil-rate band. However, if at least 10% of the net estate is left to charity, the rate of Inheritance Tax on the remaining estate is reduced to 36%.
Key Rules
- The ‘net estate’ is calculated after deducting liabilities, exemptions, and the nil-rate band.
- The 10% charitable gift is calculated separately for different parts (‘components’) of the estate.
- Executors can make elections to merge components for simplicity.
Example
An estate worth £1.5 million:
- Nil-rate band: £325,000
- Taxable estate: £1,175,000
- If at least £117,500 (10%) is donated to charity, the IHT rate on the remaining £1,057,500 is reduced from 40% to 36%, resulting in tax savings.
Comparison: With vs Without Charitable Gift
| No Charity Gift | 10% to Charity | |
|---|---|---|
| Taxable Estate | £1,000,000 | £1,000,000 |
| Charity Gift | £0 | £100,000 |
| Taxable After Gift | £1,000,000 | £900,000 |
| IHT Rate | 40% | 36% |
| IHT Payable | £400,000 | £324,000 |
| Net to Other Heirs | £600,000 | £576,000 |
| Effective Cost of Gift | £0 | £24,000 |
How to Arrange This
- Include the gift in your Will, clearly stating the amount or percentage.
- Ensure the charity is a UK-registered charity.
- Speak to a solicitor or estate planner to calculate the 10% threshold correctly.
- Executors can sometimes vary the Will after death to enable this relief via a Deed of Variation.
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About the Author
Jessica Partridge
Partner & Head of Tax and Trusts
Jessica Partridge is a Partner and Head of Tax and Trusts, advising individuals, families, trustees and business owners on complex tax, trust and succession planning matters. Having qualified as a solicitor in 2007, she has developed extensive expertise in wealth preservation, estate planning, trust structuring and administration, and tax-efficient succession planning.Jessica is a full member of STEP (the Society of Trust and Estate Practitioners), reflecting her specialist knowledge and experience in trusts and estates. She is known for providing clear, pragmatic advice on complex matters and for building long-standing relationships with clients and their professional advisers. As Head of Tax…