People are leaving bigger gifts to charity in their wills to cut their inheritance tax (IHT) bill as well as for personal or philanthropic reasons, according to a law firm.
The amount saved on IHT by leaving money to charity has soared 88 per cent to an annual £1.28billion over the past six years, according to government figures published earlier this year analysed by TWM Solicitors.
Money left to charity is not liable for IHT, and you can cut the overall rate from 40 per cent to 36 per cent if you give a big enough chunk of your estate to good causes.
You need to bequeath at least a tenth of your net estate – the part liable for IHT – to charity in your will to get the discount.
Around 4-5 per cent of estates currently pay death duties, and this is expected to rise to 7 per cent once unspent pensions are included in assets liable for IHT starting from April 2027.
IHT is levied at 40 per cent above thresholds which start at £325,000 per person, or £500,000 if you leave a home to direct descendants.
Couples can double those thresholds, because spouses are exempt from IHT.
TWM says in 2025-26 tax year £1.22billion was saved on gifts left to charities and property held in trust for charitable reasons, while a further £55million was saved via the rate reduction to 36 per cent.
Gillian Dunlea, managing associate at the law firm, says: ‘Some people are understandably concerned about the level of inheritance tax payable on their estates, and charitable giving can appeal because gifts to charity are free from IHT.
‘With pensions being subject to IHT from 2027, pensions may become less tax efficient for families to inherit, so clients should review their pension nominations alongside their wills, particularly where they intend to make charitable gifts as part of overall estate planning.’
Dunlea adds: ‘Many people prefer to leave charitable gifts in their will rather than during their lifetime where they are concerned about future care costs or retaining enough income in later life.’
‘Gifting to charities through wills may also have risen as, increasingly, beneficiaries – generally children or even grandchildren – are grown up and already financially independent.’
Ian Dyall, head of estate planning at wealth management firm Evelyn Partners, says: ‘If you are already making significant gifts to charity in your will it is probably worth checking whether they will qualify for the reduced 36 per cent inheritance tax rate.
‘In some cases, a small increase in the gift to charity will mean that both the charity and your beneficiaries inherit more, because the reduction in inheritance tax more than covers the additional amount gifted to charity.
‘We have even done this following a person’s death using a deed of variation to amend the original charitable gift.’
Dyall goes on: ‘If you do wish to make a gift to charity then you need to decide whether it is better to make that gift during life or via your will on death.
‘Gifts during lifetime benefit from Gift Aid which can help reduce your income tax liability, whereas significant gifts via your will can help secure the reduced inheritance tax rate on all the assets in your estate.’
Source- Families saved £1.28bn in inheritance tax last year by leaving money to charity
