Could giving to charity reduce my IHT liability?
Could a charitable donation help reduce the inheritance tax payable on your estate? While gifts to qualifying charities are exempt from IHT, leaving at least 10% of part of your estate to charity could also reduce the IHT rate from 40% to 36%. In this article, we explain the rules, how the calculations work, and what role charitable giving could play in your wider estate planning strategy.
Yes, leaving a certain amount to a qualifying charity via a will could reduce your inheritance tax (IHT) bill. But there are rules and minimums in place that must be met in order to qualify.
These rules can be quite specific, so let’s go over the essentials to keep your inheritance plans on track.
What are the current IHT rules on charity donations?
As a reminder, IHT is currently levied at 40% on the part of your estate valued above the £325,000 threshold, known as the nil-rate band. There is also a residence nil-rate band which adds £175,000 to this threshold if a main home is passed down to direct descendants. Couples can share their nil-rate bands, meaning up to £1m can be passed on tax-free to beneficiaries.
Also, gifts to UK charities are 100% exempt from IHT, which removes them from your estate calculation. But where IHT is due, it is possible to lower the chargeable rate via charity donations. If, in your will, you leave at least 10% of the relevant part of your estate to charity, your IHT rate could be reduced from 40% to 36%. The donation will be taken off the value of your estate before IHT is calculated.
Also, your “estate” is calculated in a unique way when it comes to factoring in charity donations. HMRC uses what’s called a “baseline amount” to determine whether the 10% charity test has been met. To calculate this baseline amount, the nil-rate band is deducted, but not the residence nil-rate band.
How much could you save?
Of course, as estate sizes vary greatly, how much could be saved with charity donations will differ from person to person. However, the latest data from HMRC shows that the average IHT bill paid in 2023/24 was £231,000.
Moreover, estates shielded £1.28bn from IHT last year alone by giving to charity, according to reporting from the Telegraph released in August 2026.
Say a £2m estate makes no gift to charity. It would pay 40% IHT on £1.5m after deducting both of the tax-free allowances (assuming there was no sharing of allowances with a partner). This would result in a final bill of £600,000.
But if the same estate donated £167,500 to charity (10% of the baseline amount), the reduced IHT rate of 36% comes into play, resulting in a final tax bill of £479,700.
In this example, the IHT bill falls by £120,300. The charitable donation would limit how much is passed onto beneficiaries, which is why families need to determine what’s right for their circumstances.
Ultimately, by utilising charity donations, more of your estate could go to your family and the causes you care about - and not the taxman.
What if you don’t have a will?
If you have not created a will, it may still be possible to benefit from the 36% cut via a deed of variation. In a nutshell, a deed of variation can introduce a charity gift after death, by redirecting a gift from a taxable beneficiary to a charity.
It should be noted that Lloyds Wealth does not provide will writing or Power of Attorney services. Will writing and Power of Attorney services are not regulated by the FCA, and you should refer to a provider’s literature for details and confirmation. Your adviser can introduce you to specialists in these areas, and Lloyds Wealth might receive a referral fee from some of the partners we introduce to you.
Do all charity donations qualify?
The Government has an official list of registered charities in England, Wales, Scotland, and Northern Ireland. Officially, HMRC defines a charity as: a body of persons or a trust that is established for charitable purposes only, and meets jurisdiction, registration, and management conditions which can be found here.
Could financial advice help?
Charitable donations aren’t the only way to potentially bring an IHT bill down. Gifting, utilising trusts, maximising reliefs, and taking out life insurance policies are all strategies that could be considered for limiting IHT costs.
Inheritance tax planning can be notoriously complicated, but with careful preparation, you could get plans in place to support your loved ones and ensure more of your estate goes to them rather than HMRC.
Lloyds Wealth offers personalised advice that considers your current and future needs. We can support you in understanding your potential IHT liabilities, and the options available to you.
We can begin with a free, no obligation conversation to understand if our service is right for you. There are no hidden fees or charges, and you’ll only pay if you choose to go ahead with the recommendations in your personalised financial plan.
If you have any questions on IHT or need further assistance for your wider financial concerns, don't hesitate to reach out to a financial adviser.
Important information
This article is for information purposes only. It is not intended as advice.
This article refers to third party sources which we believe to be true and accurate.
Fees, and Charges and eligibility criteria apply.
The different scenarios discussed are examples and what is right for each person will depend on individual circumstances.
Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.
Any views expressed are our in-house views at the time of publishing. This content may not be used, copied, quoted, circulated or otherwise disclosed (in whole or in part) without our prior written consent.
