Britain’s wealthy families are increasingly using a little-known inheritance tax (IHT) rule which could cut the inheritance tax rate by 10%. It comes as estate planning professionals report a rise in demand for their advice from individuals worried about the bills they might otherwise leave behind after a tightening of the IHT rules.
The trick to getting a reduced rate of inheritance tax is to leave some of your estate to a charity in your will.
The gift itself is exempt from inheritance tax. But if 10% or more of your net estate is left to charity, your loved ones will typically also qualify to pay inheritance tax at a reduced rate of 36%. That is a 10% saving on the normal IHT rate of 40%.
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A survey of high-net-worth families with average wealth exceeding £3 million found 53% have increased charitable donations in the past two years, with two-thirds (66%) expecting to give more in the next two. Almost two-thirds (62%) have included a charitable gift in their will – averaging £233,000 – and 83% of those without a will intend to write one within three years including a charitable gift, according to the Rathbones study.
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Jude Dawute, managing director of financial planning firm Benjamin House, said: “It’s a simple, effective way to support meaningful causes while also lowering the IHT burden.”
Dawute gave an example:
“One client had an estate valued at £2.5 million, with a projected IHT bill of £460,000. By gifting 10% of their net estate (£225,000) to three registered charities through their will, they reduced their IHT rate to 36%, saving approximately £60,000 in tax,” he said.
“That £60,000 stayed within the family – while £225,000 went directly to causes they cared deeply about.” The IHT bill was lowered to £400,000.
We look at ways to reduce an IHT bill or avoid inheritance tax by giving gifts to loved ones in separate guides.
Inheritance tax changes trigger advice demand
Changes to inheritance tax rules – particularly the freezing of the nil rate band and the inclusion of unused pensions as part of the taxable estate from April 2027 – “are prompting more people to consider charitable legacies as part of their estate planning”, according to James Graham, wealth planner at Succession Wealth.
Almost all (92%) will writers, solicitors and financial advisers surveyed by Remember a Charity believe estate and tax planning will increase as new inheritance tax policies come into view in the next two years.
Six in 10 say they are already receiving more requests for advice, according to the poll of more than 200 estate planning professionals – and 65% say the charitable tax incentives will become even more important to their client base.
Tanya Watson, chartered tax adviser and senior director at Alvarez & Marsal Tax LLP, said: “The changes to IHT are prompting a fundamental reassessment of estate planning strategies, particularly among clients who may not have previously been impacted.
“Charitable giving can be a highly effective planning tool, and these changes provide a timely reason for advisers to revisit legacy plans with clients who may not have considered this route before.”
However the Rathbones survey of high-net-worth families found more than two in five (42%) say legal and financial complexity is the main challenge preventing them from including charitable giving in their estate plans. Almost as many (39%) cite a lack of knowledge about non-profit options, while over a quarter (26%) admit they are unsure where to begin.
Rebecca Williams, financial planner at Rathbones, said: “We’re seeing more families recognising that with the right advice, they can reduce their tax exposure, protect their loved ones, and make a meaningful difference to the causes they care about. The challenge is that too many still feel uncertain about how to start. Professional guidance is essential, to turn good intentions into effective, lasting legacies."
How can I set up a charitable legacy?
The most common and straightforward method of gifting to charity is through a person’s will. This allows individuals to leave a specific gift or a percentage of their estate to a named charity – which can also reduce the inheritance tax rate from 40% to 36% if at least 10% of the net estate is gifted.
For larger or more complex estates, charitable trusts may also be considered.
“These allow donors to allocate funds over time, often in line with particular aims or governance preferences, and can offer more flexibility – though they require more planning and administration,” said Dawute.
The financial adviser typically begins by calculating the client’s inheritance tax liability based on current asset values and allowances.
From there, they help structure a suitable balance between what’s passed on to family and what may be given to charity – optimising the estate’s value and the legacy it creates.
Some charities will help with will writing if you leave a legacy to them. For instance Macmillan Cancer Support offer a free will service, with the option to leave a percentage of your estate to them.
Graham said: “Many of my clients are motivated by a personal connection to a cause, for example, one client recently amended her will to leave a legacy to a local hospice that had cared for her husband.”
Things to consider when choosing a charitable legacy
Choosing a charitable legacy is often the most personal part of the planning. There are a few key considerations Dawute guide clients through:
- Connection: Does the cause reflect something meaningful in their life? For many, this could relate to a health condition, local community, or area of passion.
- Credibility: Is the charity well-managed and transparent with funds? Clients want confidence that their gift won’t be lost to inefficiencies or mismanagement.
- Continuity: Will the charity still exist or be relevant when the estate is settled? We sometimes suggest naming two or more organisations to prevent the gift failing entirely if one dissolves.
Many wealthy individuals are also planning to leave non-cash assets to charity – such as property, investments or valuable personal items – which are then exempt from IHT and excluded from the estate valuation. One in ten (10%) have already planned such gifts, with a further 82% likely to do so, according to the Rathbones study.
It’s important to speak to a financial planner and solicitor to ensure the will is structured properly, and to understand the impact on your estate and beneficiaries.
Graham said: “I always encourage clients to check the Charity Commission’s register to ensure their donation will be used as intended.
“And if you want your legacy to have an immediate impact, you might consider smaller charities which often have lower overheads than larger organisations.”
