Charitable Legacy to Reduce IHT to 36%: How It Works

How does leaving 10% to charity reduce IHT from 40% to 36%?

1If you leave at least 10% of your 'net estate' (estate after deducting the nil-rate band) to a qualifying UK charity, the IHT rate on the rest drops from 40% to 36%.
2The 10% calculation is based on the 'baseline amount' — the net estate after nil-rate band, not the whole estate — so the threshold is lower than it first appears.
3The maths only works in your family's favour when the estate is large enough that the tax saving from the 36% rate exceeds the amount donated to charity.
4The legacy must go to a qualifying charity (UK-registered or HMRC-recognised) — gifts to friends, unregistered organisations, or community groups do not qualify.
5Existing wills should be reviewed to see whether adding or increasing a charitable legacy would reduce the IHT bill enough to benefit non-charitable beneficiaries.

Leaving 10% or more of your net estate to a UK charity reduces the IHT rate from 40% to 36% on the remainder. This "charitable legacy" rule has been available since 2012, but is still underused. For larger estates, the tax saving can mean the family actually receives more even though assets are being given to charity.

How the 36% Rate Works

The standard IHT rate is 40% on the taxable estate above the nil-rate band. If the deceased leaves at least 10% of their "net estate" to a qualifying charity, the IHT rate on the remaining taxable estate drops to 36% — a 4 percentage point reduction.

The "net estate" for this purpose is the estate after deducting:

Debts and funeral expenses
The nil-rate band (£325,000 in 2025/26)
The RNRB (where applicable)
Spouse and charity exemptions already being claimed

The 10% is calculated on this reduced "baseline" figure — not on the gross estate value. This is important: the threshold to trigger the 36% rate is often much lower than people expect.

When Is It Worth It? The Mathematics

The charitable legacy only makes financial sense for the family when the IHT saving from the reduced rate (4 percentage points on the remaining estate) exceeds the amount donated to charity.

As a rough rule of thumb: the charitable legacy is worthwhile for non-charitable beneficiaries when the taxable estate (above the NRB) is approximately £600,000 or more. Below that level, the IHT saving is smaller than the charitable donation — family beneficiaries are worse off financially.

Worked Example 1: Small Estate — Not Worth It

Estate: £500,000. NRB: £325,000. Taxable amount: £175,000
Standard IHT at 40%: £70,000. Family receives: £430,000
Baseline for 10% calculation: £175,000. 10% = £17,500 to charity
Remaining taxable: £175,000 − £17,500 = £157,500 at 36% = £56,700 IHT
Family receives: £500,000 − £17,500 charity − £56,700 IHT = £425,800
Family is worse off by £4,200 vs not donating to charity

Worked Example 2: Large Estate — Worth It

Estate: £1,500,000. NRB: £325,000. Taxable amount: £1,175,000
Standard IHT at 40%: £470,000. Family receives: £1,030,000
Baseline for 10%: £1,175,000. 10% = £117,500 to charity
Remaining taxable: £1,175,000 − £117,500 = £1,057,500 at 36% = £380,700 IHT
Family receives: £1,500,000 − £117,500 charity − £380,700 IHT = £1,001,800
Family is worse off by £28,200 vs not donating to charity

In this example, the family still receives less — but the combined charity + family benefit is greater. Whether this is "worth it" depends on the deceased's wishes and charitable intentions.

Worked Example 3: Very Large Estate — Beneficial

Estate: £5,000,000. NRB: £325,000. Taxable amount: £4,675,000
Standard IHT at 40%: £1,870,000. Family receives: £3,130,000
10% to charity: £467,500
Remaining taxable: £4,207,500 at 36% = £1,514,700 IHT
Family receives: £5,000,000 − £467,500 − £1,514,700 = £3,017,800
Family receives £112,200 less than without charity donation, but charity receives £467,500
Total distributed: £3,485,300 vs £3,130,000 without donation — more total value distributed

The conclusion: the charitable legacy rule is most beneficial when the deceased genuinely wants to support charity and has a large taxable estate. The family receives slightly less, but the combination of charity and family receipts is greater than without the legacy.

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Qualifying Charities

To trigger the 36% rate, the legacy must go to a "qualifying charity." This means:

UK charities registered with the Charity Commission for England and Wales, OSCR (Scotland), or the Charity Commission for Northern Ireland
Charities in EU/EEA member states may also qualify in certain circumstances
Charitable bodies established in other jurisdictions may qualify if HMRC recognises them — but this requires specific advice

Gifts to unregistered organisations, community groups, social enterprises, or individuals — however worthy — do not qualify for the charitable exemption or the 36% rate.

How to Include a Charitable Legacy in Your Will

A charitable legacy in a will can be structured as:

Specific legacy:"I give £50,000 to [charity name, registered charity number]"
Residuary legacy:"I give 10% [or more] of the residue of my estate to [charity name]"
Percentage legacy: Structuring the charitable gift as a percentage of the estate — ensuring it scales with the estate value and meets the 10% threshold automatically

A percentage legacy is often the most robust approach for triggering the 36% rate — a fixed monetary legacy may fall short of the 10% threshold if the estate grows, or may exceed it unnecessarily. A solicitor can draft the will to ensure the legacy automatically adjusts to meet the threshold.

Reviewing an Existing Will

If you already have a will that leaves a smaller charitable legacy (less than 10% of the net estate), it may be worth reviewing whether increasing it to 10% would be beneficial. In some cases, adding a charitable legacy where there is none could reduce the family's IHT bill — though as the examples above show, it depends on the size of the estate.

See our guide to how to write a will in the UK for more on will planning generally.

Combining With Other IHT Planning

The charitable legacy interacts with other IHT reliefs. In particular:

Where BPR or APR applies to qualifying business or agricultural assets, those assets may be excluded from the 10% calculation — see our guides to BPR changes and APR changes
A deed of variation can be used to redirect part of an inheritance to charity after death — potentially triggering the 36% rate retrospectively — see our guide to deeds of variation

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