Inheritance Tax and gifts to charity

Your estate may be liable for Inheritance Tax (IHT) if it’s worth more than the IHT threshold when you pass away.

This threshold, also known as the nil rate band, is currently set at £325,000. This means that any part of your estate above that value may be taxed at a rate of 40%.

Your Executors will need to pay the IHT bill within six months of your death, and before they can distribute your estate. They may need to take out an interest-paying loan to do so.

Example:

Mrs Howden’s estate is worth £425,000 when she dies. The sum of £100,000 above the nil rate band attracts an Inheritance Tax bill of £40,000. (40 percent of £100,000 = £40,000). 

The good news is that UK-registered charities and sports clubs are exempt from Inheritance Tax. This means that leaving a legacy to charity in your Will doesn’t count towards the nil rate band, thereby reducing the taxable value of your estate.

Example:

Mrs Howden’s estate is worth £425,000 when she dies. That’s £100,000 above the nil-rate band.

In her Will, Mrs Howden included legacies to her favourite charities, totalling £100,000. This amount is subtracted from the taxable value of her estate, meaning her Executors won’t have any IHT to pay.

Leaving charitable gifts totalling 10 per cent or more of your net estate value over the nil rate band threshold can reduce the rate of IHT payable on your estate from 40 per cent to 36 per cent.  

We always recommend using an experienced and specialist Wills and Probate solicitor to make or update your Will, especially if you want to reduce your inheritance tax through charitable legacies.

Everyone’s personal and financial circumstances are different, and a range of factors can affect how your estate’s value is calculated. Getting expert advice is an investment in your loved one’s future. It’s the best possible way to safeguard your family’s financial interests and avoid leaving them with upsetting and costly complications to sort out.

The Autumn 2024 budget included several amendments to the rules surrounding the taxable status of certain assets. 

• Pensions

From April 2027, unspent pension pots will no longer be exempt from IHT. Instead, they will form part of your estate and be included in its overall value.

• Farmland and farm property

Changes to agricultural relief and business relief mean family farms and businesses will no longer be exempt from IHT.

• Alternative Investments

From April 2026, assets listed on the sub-section of the London Stock Exchange known as the Alternative Investment Market (AIM) will become eligible for IHT.

While many families won’t be affected by the changes concerning agricultural property and alternative investments, the Office for Budget Responsibility estimates the changes to pension eligibility will result in an additional 10,500 estates each year becoming liable for Inheritance Tax. They also predict that 38,500 estates a year will have to pay more IHT under the new rules. 

In addition to leaving a gift in your Will, your Solicitor will be able to offer guidance on some of the other tools you could use to mitigate IHT and plan your Will accordingly.

Married couples and civil partners benefit from “spouse or civil partner exemption”, so can pass assets from one to another during their lifetime or after death without attracting IHT. Please note: the partner receiving the assets must have their permanent home in the UK for this to be possible.

Each individual in a marriage or civil partnership has a nil rate band allowance of £325,000. If one partner dies without using all of their nil rate band, their remaining allowance can be transferred to their surviving partner. This is known as the transferable nil rate band, or TNRB for short. If the first partner dies and leaves everything to their spouse of civil partner, there will not be any IHT to pay on the first estate. The deceased partner’s nil rate band allowance can be added the second partner’s allowance. The second estate will not, therefore, attract IHT unless its value exceeds £650,000. 

If your estate includes the family home and is worth more than the Inheritance Tax threshold when you die, it may qualify for an allowance known as the residence nil rate band (RNRB). At the time of writing (February 2026) the residence nil rate band is worth an additional £175,000 if you leave the family home to direct descendants such as your children or grandchildren. That’s on top of the £325,000 already mentioned.  

Please seek professional advice if you would like to take advantage of the RNRB, as the rate of allowance can vary. 

The taxable value of your estate can be influenced by certain gifts made during your lifetime, such as:

• general gifts up to a total of £3,000 a year
• wedding gifts of up to £5,000 for your children
• wedding gifts of up to £2,500 for your grandchildren
• gifts made for public benefit e.g. to galleries, museums or political parties
• gifts made more than seven years before your death