Charitable Giving in Your Will: The 36% IHT Rate Explained

Leaving money to charity in your will does more than support a cause you care about - it can genuinely reduce the Inheritance Tax rate on the rest of your estate, through a specific, calculable threshold that’s worth understanding if charitable giving is already part of your plans.

The basic exemption

Gifts to UK-registered charities are entirely exempt from Inheritance Tax, regardless of the amount - a £50,000 charitable gift in a will reduces the taxable estate by the full £50,000, with no IHT charged on that portion at all.

The additional benefit: a reduced rate on the rest of the estate

If you leave at least 10% of your ‘net estate’ to charity, the Inheritance Tax rate on the remainder of the taxable estate drops from the standard 40% to 36% - a genuine reduction in the rate applied to everything else, not just the charitable portion itself.

How the 10% calculation actually works

The 10% is calculated against the ‘baseline amount’ - broadly, the value of the estate after deducting debts, funeral costs, exemptions (like the spouse exemption), reliefs, and the available nil-rate band (including any unused band transferred from a spouse, but not the residence nil-rate band), with the charitable gift itself then added back - not the full gross estate value. This calculation can be genuinely complex, particularly for estates with multiple components (property, business assets, investments) taxed at different rates or with different reliefs applying, and is worth having calculated precisely by a professional rather than estimated informally.

A simplified worked example

An estate with a baseline amount (after the nil-rate band, and ignoring any residence nil-rate band) of £200,000 would need to leave at least £20,000 (10%) to charity to qualify for the reduced 36% rate. If it leaves exactly £20,000 to charity, the remaining £180,000 is taxed at 36% instead of 40% - a saving of £7,200 in Inheritance Tax, on top of the £20,000 that already wasn’t taxed at all because it went to charity.

Why this can mean charities effectively receive more at little extra cost to the estate

Because crossing the 10% threshold reduces the rate on the entire remaining taxable estate, the net cost to non-charitable beneficiaries of increasing a charitable gift to reach the 10% threshold can be considerably smaller than the increase in the gift itself - in some cases, a modest increase in the charitable gift barely reduces (or in edge cases can even increase) what beneficiaries ultimately receive, because of the rate reduction on the rest of the estate.

Using a Deed of Variation to add charitable giving after death

If a will doesn’t include charitable gifts, or doesn’t reach the 10% threshold, beneficiaries can use a Deed of Variation (see our dedicated article on this) within two years of death to redirect part of their inheritance to charity - potentially still securing the reduced 36% rate for the estate, provided the variation is completed correctly and within the time limit, and the charity is notified of it.

Practical considerations when planning charitable gifts in a will

• Decide whether to leave a fixed sum or a percentage of the estate - a percentage-based gift automatically adjusts if your estate’s value changes between writing the will and your eventual death, which a fixed sum doesn’t. This interacts particularly with blended family planning, where balancing a charitable gift against provision for a second spouse or step-children needs specific care (see our dedicated article on second marriages and wills).
• Name the charity precisely, including its registered charity number where possible, to avoid ambiguity if a similarly named charity exists or if the charity later merges with another organisation.
• Get the 10% baseline calculation checked by a professional if you’re specifically aiming to hit the reduced rate threshold - the calculation is more complex than a simple percentage of the total estate, and getting it slightly wrong can mean missing the threshold despite genuine intentions to meet it.

The bottom line

Charitable gifts in a will are always fully exempt from Inheritance Tax, and reaching the 10% baseline threshold reduces the rate on the rest of the estate from 40% to 36% - a genuine additional benefit worth understanding and calculating precisely if charitable giving is already something you’re considering as part of your estate plan.