The charitable way to reduce inheritance tax

For many families, inheritance tax (IHT) has gone from being a distant concern to a real financial planning issue.

With the current IHT threshold frozen at £325,000, and property values rising in many parts of the UK, more estates are now falling into the tax net. Any part of an estate above the available allowances can face tax at 40%.

For those who are charitably minded, however, there is one planning option that could reduce the tax bill while supporting causes they care about.

But it’s important to stress that charitable giving should never be driven purely by tax considerations. It is simply one of several tools available when planning how your estate may be passed on.

How charitable gifts affect inheritance tax

If you leave money to a registered charity in your will, that gift is completely exempt from inheritance tax.

In addition, if 10% or more of your net estate is left to charity, the inheritance tax rate on the remainder of the estate may fall from 40% to 36%.

This means charitable giving can sometimes benefit both a good cause and your beneficiaries. However, the suitable approach will always depend on your personal circumstances and priorities.

A quick reminder

Charitable giving is just one aspect of inheritance tax planning. Other strategies – such as gifting during your lifetime, using available allowances, or structuring assets carefully – may also form part of a broader estate plan.

If you are reviewing your inheritance tax position, it may be worth speaking to our team about the options available to you.

Making charitable giving work properly

If you are considering leaving money to charity in your will, careful planning is important to ensure your wishes are carried out.

1. Include it clearly in your will

The most reliable way to leave money to charity is through an appropriately  drafted will. This helps to ensure that  your instructions are clear and legally enforceable.

2. Identify the charity accurately

Always use the charity’s full legal name and registered charity number. This helps ensure your gift reaches the intended organisation and avoids confusion during probate.

3. Ensure the gift is made before inheritance tax is calculated

For the tax relief to apply, the charitable gift must be deducted from your estate before inheritance tax is assessed.

4. Discuss your intentions with your family

Open conversations can help avoid misunderstandings later. If family members understand the reasoning behind your decisions, it can make the process smoother for everyone involved.

5. Seek professional advice

Inheritance tax planning often involves several moving parts. Charitable giving may form part of the solution, but it is rarely the only strategy.

A balanced approach to inheritance planning

For some people, leaving money to charity is an important way to support causes that have mattered to them during their lifetime.

For others, their priority may be passing on as much wealth as possible to family members.

Both approaches are entirely valid. The key is to ensure your estate planning reflects your values, your family circumstances, and your long-term financial goals.

If you would like to explore how inheritance tax planning might work in your situation including whether charitable giving could play a role, we would be happy to discuss the options with you and help create a plan tailored to your family.

Tax relief when you donate to a charity: Leaving gifts to charity in your will – GOV.UK

IHTM11101 – Gifts to charities or registered clubs: introduction – HMRC internal manual – GOV.UK

This article is intended for general guidance only and is based on the opinion of Continuum it does not constitute financial advice. Individual circumstances vary, and you should consider seeking advice from a regulated financial adviser before making any decisions about your Savings, Investments, or Inheritance tax planning.

The Financial Conduct Authority does not regulate taxation and trust advice or will writing.

Levels and basis of reliefs from taxation are subject to change and their value depends upon your personal circumstances. We recommend seeking professional advice on personal taxation matters.