When I sit down with clients at Online Probate to discuss their Wills, one of the most rewarding conversations I have is about leaving charitable donations. I’m always surprised by how many people don’t realise that they can leave a gift to charity in their Will. People simply aren’t aware that not only can they support causes close to their heart, more importantly, they can reduce their inheritance tax (IHT) liability, ensuring their loved ones receive even more money. As an experienced FCA-regulated financial expert with 15 years of will writing experience, I’ve seen countless situations where planned giving has benefited both clients’ families and the charities they care about.
In this post, I’ll walk you through the benefits of leaving a gift to charity in your Will in accordance with UK tax laws. I’ll also answer some common questions you may have, based on real-life experiences from my practice.
How Leaving a Gift to Charity Could Save You Thousands
Inheritance tax in the UK can take a substantial portion of your estate. Currently, IHT is set at 40% on any amount above the £325,000 threshold (known as the “nil-rate band”). However, gifts to registered charities are exempt from inheritance tax. This means that anything you leave to charity in your Will is deducted from the value of your estate before tax is calculated.
For example, let’s say you leave an estate worth £600,000. Normally, after the £325,000 threshold, £275,000 would be subject to the 40% tax, meaning your family would pay £110,000 in IHT. But if you leave £50,000 to charity, that amount is subtracted from the taxable portion, bringing it down to £225,000. Your tax bill would then be £90,000 instead of £110,000, saving your family £20,000 while benefiting a cause you care about.
The 10% Rule: An Even Bigger Tax Break
In addition to the basic inheritance tax exemption for charitable gifts, there’s another crucial point that not many people know about. If you leave at least 10% of your net estate (the part of your estate over the nil-rate band) to charity, the tax rate on the remainder of your estate drops from 40% to 36%.
The Gov.uk website has a handy calculator for working out the amount you’ll need to donate to reduce the tax rate from 40% to 30%.
This is where I’ve seen clients really make a difference. For example, a client of mine, Valerie, had an estate worth £1 million (property and assets combined). She was initially planning to leave £50,000 to her favourite charity. After we crunched the numbers, I explained that if she increased her donation to £67,500—10% of her net estate—she would reduce the inheritance tax on the remainder from 40% to 36%. By doing so, Valerie not only gets to give more to charity, but is also able to reduce her tax bill by an additional £13,500, leaving more to her family.
How Do You Leave Money to Charity in Your Will?
1. Pecuniary vs Residuary gifts
Leaving money to charity in your Will is straightforward, but it must be done correctly to ensure that your wishes are carried out and that your estate receives the tax benefits. When drafting or updating your Will, you can include specific instructions to leave a cash sum (called a ‘pecuniary legacy’), a percentage of your estate (a ‘residuary gifts’), or even a specific asset, like a property or shares.
Residuary gifts are the recommended method for leaving charitable donations in wills. While cash sums depreciate over time, leaving a set percentage of your estate will raise in value and. This is the best way to ensure that your chosen charity benefits and your inheritance tax is kept to a minimum.
2. Name Your Charity
It’s crucial that the charity is properly identified in your Will. I always recommend including the full registered name and charity number to avoid any confusion. Charities like LCH Charity the British Heart Foundation or Cancer Research UK are common, but you can choose any charity that’s registered with the Charity Commission.
If you’re unsure how to word this in your Will, consult your solicitor or will writing professional. At Online Probate Jane, our resident solicitor will look through all the details of our wills to ensure these details are correct. This way, your legacy is protected, and the tax savings are realised.
Can Family Members Contest Donations in My Will?
One concern that often comes up is whether family members can contest charitable donations. In the UK, under the Inheritance (Provision for Family and Dependants) Act 1975, certain individuals, such as spouses, children, or those financially dependent on you, can challenge your Will if they feel they haven’t been reasonably provided for. This could include contesting charitable gifts if they believe the donation leaves them with insufficient inheritance.
To reduce the risk of a challenge, I always recommend that clients discuss their wishes with their family in advance. Having open conversations can prevent disputes and ensure everyone understands why you’ve made certain decisions. In my experience, clients who involve their family in the planning process tend to have smoother outcomes, with less likelihood of contestation.
Is Tax Payable on My Donation?
No, tax is not payable on charitable donations made in your Will. Gifts left to registered UK charities are exempt from inheritance tax. This is one of the reasons why charitable giving can be such a powerful tool in estate planning. In fact, this tax exemption can reduce the overall IHT liability of your estate, making it an efficient way to both support a cause and benefit your heirs.
Can I Specify How a Charity Should Use My Money?
Yes, you can specify how you would like the charity to use your gift, but it’s essential to be cautious. I’ve had clients who felt very passionate about a specific project or cause within a charity, and they wanted to ensure their donation was used in a particular way. While this can be done, it’s important to discuss your plans with the charity first.
Many charities are happy to accommodate specific wishes, but it’s crucial to make sure your instructions are reasonable and achievable. If a charity is unable to fulfil your request, your gift might be refused or used in a different way, which is something I always advise clients to avoid.
Are There Any Rules About Leaving Money to Charity in Your Will?
Although there are no restrictions on which charities you can leave money to in your will, you do have to make reasonable provisions for any people that are financially dependent on you. This can include:
- A spouse or civil partner
- Children (or grown up offspring)
- A romantic partner that has been living with the deceased for at least two years
- Someone who has been fully or partially supported financially
Not making reasonable provisions means these individuals would be within their right to dispute your will after your death. Family members can contest a will under the Inheritance (Provision for Family and Dependants) Act 1975 if they believe they have not been adequately provided for. The charity you’ve left your money would then have to go through costly legal proceedings to claim what is rightfully theirs.
The key to leaving money to charity
The key rule is that the charity must be registered in the UK to qualify for the tax exemption. Additionally, as I mentioned earlier, it’s essential to correctly identify the charity in your Will to avoid confusion. Other than that, there are no significant restrictions, and you’re free to leave as much or as little as you like to charity.
It’s also worth noting that charitable giving is not just for the wealthy. In my experience, clients with estates of all sizes have been able to benefit from tax savings while making meaningful contributions to charity. Whether you’re leaving £1,000 or £100,000, the process is the same, and the benefits are available to everyone.
Can I leave my house to charity?
Yes, you can absolutely leave your house, or any other property, to charity in your Will. This is a type of specific gift, where you bequeath an asset (in this case, your home) rather than a sum of money. It’s a powerful way to support a cause, and it can also significantly reduce the inheritance tax (IHT) liability on your estate, since the value of the property would be deducted from your estate before IHT is calculated.
Leaving property to charity is fairly straightforward, but there are a few practical considerations to keep in mind. First, it’s essential that the charity is willing to accept the property. In most cases, large charities have the resources to manage, sell, or make use of property donations, but it’s always a good idea to discuss your intentions with the charity in advance to ensure your gift can be accepted and managed according to your wishes.
One client of mine, for example, had a country home that she no longer needed. She wanted it to benefit a local hospice that had cared for her husband. By leaving the house to the hospice in her Will, she was able to make a significant contribution that went far beyond what she could have given in cash. The hospice later sold the property, using the proceeds to fund their ongoing services. The other added benefit was that her estate benefited from the IHT exemption on the value of the house. Leaving your house to charity can be a meaningful and tax-efficient way to make a lasting difference. Whether you intend to donate a holiday home, rental property, or even your primary residence, the gift can provide much-needed support to a cause while reducing the tax liability for your estate.
Will you leave money to charity in your will?
Leaving gifts or money to charity through your Will is a powerful way to support causes close to your heart while reducing your inheritance tax bill. By understanding the tax rules and making informed decisions, you can leave a lasting legacy that benefits both your family and the charities you care about. If you’re considering leaving money to charity in your Will, it’s essential to seek expert advice from online wills and probate experts like us, to ensure everything is set up correctly. As someone who’s been through this process many times with clients, I can confidently say it’s one of the most fulfilling decisions you can make.
