The rise of charitable legacies on death

Recent data shows gifts to charities in wills helped charities income raise by 6.5% to £4bn in the last tax year. While this trend may in part be due to an increase in the number of deaths in the year ended March 2023 (and additional 48,000 when compared with the previous year), it may also be linked to the inheritance tax advantages of leaving a gift to a charity via a will. 

Gifts to charities, whether in lifetime or on death, are free of inheritance tax. This also means, for lifetime gifts, there is no need to survive seven years from the date of the gift for it to be outside of your estate. 

In addition, for gifts made on death, there might also be an additional benefit. Where the value of the charitable gift is equal to, or more than, 10% of a deceased’s net estate, then the remainder of the estate qualifies for a reduced rate of inheritance tax (reducing from a rate of 40% to 36%). 

This rate reduction might be particularly of interest to those who are already leaving a gift to a charity in their will, but perhaps of a smaller amount. Where there is already a legacy equal in value to around 4% of a net estate, it is worthwhile considering upping this to 10%.

This would have the following impact:

  • The charity receives a larger donation
  • Overall, less inheritance tax is due given the inheritance tax free nature of the charitable gift and the reduced rate applying to the remainder of the estate.
  • Perhaps surprisingly, given a quirk in the calculation, those receiving the balance of the estate are not actually worse off by the increased charitable gift. Those beneficiaries would receive the same amount had an individual made the 4% gift to charity and more than they would have received if the charitable gift had been more than 4% but less and 10%.

For executors and non-exempt beneficiaries under a will, it's also worth noting that a will could be varied within two years of death to achieve the 36% rate of inheritance tax. 

While more often, it's more straightforward and efficient to make a gift to an established charity. The same inheritance tax relief set out above could also be achieved by make a gift to a charity created by the will of the testator, or a gift by will to one created by them during their lifetime. This tends to be more of interest to those with specific philanthropic aims, or those wanting to make a large gift to charity, and there are various options for those wanting to consider this route further. 

If you're interested in leaving a gift to charity in your will, or other options for charitable giving, please get in touch with the team who will be pleased to assist. 

Our content explained

Every piece of content we create is correct on the date it’s published but please don’t rely on it as legal advice. If you’d like to speak to us about your own legal requirements, please contact one of our expert lawyers.

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