Why a gift in your will is the most tax-efficient donation you'll ever make
Most of us think of giving as something that happens in life: a direct debit set up, a box ticked for Gift Aid, a fundraising page shared after a sponsored run. But a gift in your will — a charitable legacy — can be the most financially significant donation you ever make, and one of the most tax-efficient acts available to any UK taxpayer.
It falls outside your estate for IHT purposes, which means the 40% rate never touches it
The basic rule is simple: anything you leave to a charity registered in England and Wales with the Charity Commission (or its equivalents in Scotland and Northern Ireland) is completely free of inheritance tax. It falls outside your estate for IHT purposes, which means the 40% rate never touches it. If you were otherwise going to leave that money to a friend, a distant relative, or anyone else above the nil-rate threshold, the taxman would take a substantial cut first. Leave it to charity instead, and every pound arrives intact.
That alone makes a legacy worth considering. But there is a second, less well-known rule that makes things more interesting still.
The 10% rule: how a legacy can cut the tax on your whole estate
If you leave at least 10% of your net estate to charity, the inheritance tax rate on the rest of your taxable estate drops from 40% to 36%. That four-percentage-point reduction sounds modest, but on a large estate it can be worth a meaningful sum — and in some cases the reduction in tax paid by your other beneficiaries nearly offsets the extra given to charity.
To understand why, it helps to know what "net estate" means here. It is not your entire estate, but the portion above the nil-rate band (currently £325,000 for most people, though the residence nil-rate band can increase this further). The 10% is calculated on that taxable slice, not on everything you own.
Here is an illustrative example. Suppose your taxable estate — after deducting the nil-rate band — is £500,000. Without any charitable legacy, inheritance tax at 40% would be £200,000. If you leave 10% of that taxable estate (£50,000) to charity, the remaining £450,000 is taxed at 36%, producing a bill of £162,000. Your estate has given away £50,000 more, but the tax bill has fallen by £38,000. The net cost to your other beneficiaries is £12,000 — not £50,000.
The arithmetic does not always work out so neatly, and estates with complex structures — trusts, business assets, multiple nil-rate bands — can require professional guidance. A solicitor who specialises in wills and estate planning can work through the sums for your situation. The key point is that the 10% threshold is worth knowing about before you decide how much to leave.
How to leave a charitable legacy in practice
Charitable legacies come in two main forms. A pecuniary legacy is a fixed cash amount: "I leave £5,000 to [charity]." A residuary legacy is a share of whatever remains after all other bequests, debts and costs have been settled: "I leave 10% of my residuary estate to [charity]." Residuary gifts tend to hold their value better over time, since inflation gradually erodes a fixed sum — a residuary share scales with the actual estate.
Before writing any charity into your will, check that it is properly registered. In England and Wales, any charity with an income above £5,000 must be registered with the Charity Commission, and its registration number can be confirmed on the public register. Using the registered name and number in your will avoids any ambiguity if the charity's name changes or if it merges with another organisation.
A will is a legal document, and one written without professional help is more likely to contain errors that delay or defeat your intentions. While simple DIY wills are valid, a solicitor can ensure the legacy wording is watertight and that the 10% calculation, if you are aiming for the reduced rate, is correctly structured.
Finally, worth remembering: you can change your will at any time. If your chosen charity closes or your circumstances change, a codicil or a new will can redirect the gift. Many charities have legacy teams who can answer questions about how gifts are used — if you want to understand where a residuary bequest might go, most are happy to explain.
A legacy does not require great wealth. Even a modest residuary share, properly set up, reaches a cause you care about in full — with nothing lost to tax along the way.