Charitable giving offers two distinct Inheritance Tax reliefs in the UK: outright gifts to charity are fully IHT-exempt, and leaving 10% or more of your estate to charity reduces the IHT rate from 40% to 36%. Used carefully, charitable giving can reduce both the IHT bill and the moral weight of leaving the taxman as an unintended beneficiary. Here is how both reliefs work in 2026/27.
Two Separate IHT Reliefs for Charitable Giving
| Relief | How it works | Limit |
|---|---|---|
| Charitable exemption | Gifts to charity are fully exempt from IHT | No limit |
| Reduced rate (36%) | If 10%+ of net estate goes to charity, rate falls from 40% to 36% | Must meet 10% threshold |
The Charitable Exemption: Fully IHT-Free
Any gift to a qualifying UK charity — whether made during your lifetime or as a legacy in your will — is completely exempt from IHT. There is no upper limit.
This applies to:
- Cash legacies in a will (“I give £50,000 to Cancer Research UK”)
- Residuary bequests (“I give 20% of my residuary estate to Oxfam”)
- Outright gifts made during your lifetime
- Gifts into a charitable trust
Crucially: unlike gifts to individuals, gifts to charity do not start a 7-year clock. A gift to charity on the day before death is fully exempt — there is no PET period to worry about.
The 36% Reduced Rate: How It Works
If at least 10% of your net estate passes to qualifying charities, HMRC applies a reduced IHT rate of 36% (instead of 40%) to the remaining taxable portion.
The “net estate” for this purpose is calculated as:
- Take the total value of the estate
- Deduct available nil-rate bands (NRB £325,000 + RNRB £175,000 where applicable)
- This is the “baseline amount” — the taxable estate before the charitable deduction
- If your charitable gifts equal ≥ 10% of this baseline, the 36% rate applies
Worked Example: Does the Reduced Rate Pay?
Margaret’s estate is worth £700,000. She has the full NRB (£325,000) but no RNRB.
Baseline amount (taxable estate): £700,000 − £325,000 = £375,000
10% charitable threshold: £375,000 × 10% = £37,500
Option A: Leave £37,500 to charity, rest to family
- Taxable estate: £375,000 − £37,500 = £337,500
- IHT at 36%: £337,500 × 36% = £121,500
- Family receives: £700,000 − £37,500 − £121,500 = £541,000
Option B: Leave nothing to charity
- IHT at 40%: £375,000 × 40% = £150,000
- Family receives: £700,000 − £150,000 = £550,000
In this example, Option B leaves the family £9,000 more — because the extra £37,500 donation exceeds the tax saving of £28,500. However, Margaret may still choose Option A because she wishes to support the charity.
But consider Option C: Leave a smaller amount, say £25,000, to charity (below 10%):
- No reduced rate applies
- IHT at 40%: £375,000 − £25,000 = £350,000 × 40% = £140,000
- Family receives: £700,000 − £25,000 − £140,000 = £535,000
The sweet spot depends on the estate size, the nil-rate band position, and how much the testator wants to leave to charity. A solicitor or financial planner can model the exact break-even point.
The Top-Up Election
If your intended charitable bequest falls just short of 10%, you can elect to top up the donation to reach exactly 10%. This election is made on form IHT400 by the executors and can result in a lower total tax bill despite giving more to charity.
This is particularly useful where the shortfall is small — for example, a legacy of £36,000 against a 10% threshold of £37,500 would cost the estate 40% on the full taxable remainder; topping up by £1,500 could reduce the IHT rate for the whole estate.
Charitable Giving During Your Lifetime
Lifetime gifts to charity are immediately exempt from IHT — and can also be made under Gift Aid, providing additional tax benefits:
- The charity claims 20% basic rate tax from HMRC
- Higher rate (40%) taxpayers claim the extra 20% back via Self Assessment
- Additional rate (45%) taxpayers claim 25% back
A higher rate taxpayer who donates £8,000 to charity under Gift Aid:
- Charity receives: £10,000
- Net cost after tax reclaim: £6,000
- Estate reduction: £8,000 immediately (no 7-year rule)
For large estates, combining lifetime giving with a will provision can systematically reduce both the IHT exposure and the gross estate over time.
What Charities Qualify?
- UK charities registered with the Charity Commission for England and Wales, OSCR (Scotland), or the Charity Commission for Northern Ireland
- Exempt charities (e.g. universities, certain museums)
- Community Amateur Sports Clubs (CASCs) registered with HMRC
- Charities in the EU, EEA, Norway, and Iceland (subject to HMRC’s post-Brexit scrutiny)
Do not qualify: unregistered organisations, political parties, foreign charities outside the eligible list, and gifts to individuals however worthy their cause.
See our inheritance tax guide, gift aid higher rate taxpayer guide, and taper relief on gifts.