Many people want to leave something to a charity that matters to them while still providing properly for their family. Balancing family inheritance and charitable giving has no single right answer. It depends on your estate, your family’s needs and your own values. This guide explains the main ways to include charitable gifts in your Will, how the Inheritance Tax rules treat them, and how to talk to your family about your plans.
Charitable giving starts with what your family needs
Before deciding on a charitable gift, it helps to think about who depends on you and what they will need. For example, a spouse who will rely on your estate for life is in a very different position from adult children with homes and careers. Young children, or a family member with a disability, may need more long-term support.
It also helps to have a rough idea of what your estate might be worth. That means your home, savings, investments, pensions and possessions, less any mortgage and debts. Estate values change over time, and that is one reason the way you word a charitable gift matters.
Unmarried partners do not inherit anything under the intestacy rules, and there is no such thing as “common-law marriage”. So if you live with a partner, a Will is the only way to provide for them alongside any charitable gift.
How charitable gifts are treated for Inheritance Tax
Gifts to UK registered charities in your Will are exempt from Inheritance Tax. In other words, HMRC deducts them from your estate before working out the tax.
Inheritance Tax normally applies at 40% to the part of an estate above the available allowances. Each person has a nil-rate band of £325,000. There is also a residence nil-rate band of up to £175,000 where a home passes to children or grandchildren. However, it tapers away by £1 for every £2 the estate is worth over £2 million. Unused allowances can transfer to a surviving spouse or civil partner. The government has frozen both bands until April 2031. Also, from 6 April 2027 most unused pensions and pension death benefits will count towards the estate.
If you leave at least 10% of your “baseline amount” to charity, the rate on the rest of the taxable estate falls from 40% to 36%. The baseline amount is broadly the part of your estate above the nil-rate band, before deducting the charitable gift. HMRC explains the rules on its page about gifts to charity.
An illustrative example
For example, imagine an estate worth £800,000, where only one £325,000 nil-rate band is available and no residence nil-rate band applies.
- With no charitable gift, the taxable amount is £475,000. Tax at 40% is £190,000, and the family receives £610,000.
- With a gift of £80,000 to charity (more than 10% of the £475,000 baseline), the taxable amount falls to £395,000. Tax at 36% is £142,200. The charity receives £80,000 and the family receives £577,800.
In this example the charity receives £80,000 and the tax bill is £47,800 lower. Meanwhile, the family receives £32,200 less than they would without the gift. Every estate is different, so the outcome depends on the allowances available and the size of the gift. These figures are only an illustration, and you should confirm any calculation with an appropriate professional. A.D.E. Wills does not give tax advice, but we can refer you to an appropriate professional where you need it.
Ways to include charitable giving in your Will
A fixed sum
A pecuniary gift is a fixed amount, such as £5,000. It is simple and certain, but its real value falls over time with inflation. Also, if your estate shrinks, a fixed gift takes a bigger share of what remains.
A share of the residue
The residue is what remains after debts, expenses and specific gifts. You can leave a percentage of it to charity, for example 10%, with the rest going to your family. Because it is a proportion, the balance between family and charity stays the same whatever your estate is worth when you die.
A gift that depends on what happens first
You might want a charity to benefit only in certain circumstances, such as if your spouse or children die before you. This lets you put your family first. At the same time, your estate still goes to a cause you care about rather than passing under the intestacy rules.
A Life Interest Trust
A Life Interest Trust can let a surviving spouse or partner live in the home, or receive the income from investments, for the rest of their life. When they die, the capital passes to the people you choose, which can include a charity. This can suit people who want to provide security for a partner while deciding now where the capital eventually goes.
Leaving a specific item
You can leave a particular item, such as a painting or jewellery, to a charity. It is worth checking first that the charity is able to accept or sell the item.
Memorial funds and family involvement
Some people like the idea of a fund in their name, perhaps with family members choosing which causes benefit. However, setting up a charitable trust or fund through a Will can raise questions of charity law, administration and tax. So it needs careful thought. Many charities can set up a named tribute fund for you instead. If you need specialist advice, we can refer you to an appropriate professional.
Choosing and naming a charity
Use the charity’s full name, registered address and registered charity number in your Will. Charities change their names, merge and occasionally close. So it helps to say what should happen if the named charity no longer exists. Alternatively, you can give your executors power to choose a charity with similar aims. You can search the register on the Charity Commission’s find charity information service.
You can ask for your gift to be used for a particular purpose, such as research or a local service. If you do, it is often wise to express this as a wish rather than a strict condition. That way the charity can still use the gift if that work changes.
Talking to your family
A charitable gift that comes as a surprise can cause hurt or even disputes. Talking about your plans while you can explain them usually goes better. It can help to:
- explain why the cause matters to you
- be clear about how you will still provide for your family
- listen to any concerns, particularly from anyone who depends on you
- consider involving family members in choosing the charity
A short letter of wishes kept with your Will can also explain your reasons. It is not legally binding, but it can help your family understand your decisions.
Certain family members and dependants can make a claim against an estate under the Inheritance (Provision for Family and Dependants) Act 1975. They may do so if they believe the Will does not make reasonable provision for them. Thinking about your family’s needs carefully, and recording your reasons, helps reduce that risk.
Lifetime giving
Gifts to UK charities during your lifetime are also exempt from Inheritance Tax. Some people prefer to give some now, so they can see the benefit, and leave more in their Will. However, lifetime giving reduces what you have for your own needs, including possible care costs. So it is worth thinking about carefully.
Keep your Will up to date
Family circumstances and charitable priorities both change. It is sensible to look at your Will every few years and after major life events. Marriage or civil partnership revokes an existing Will unless you made it in contemplation of marriage to a named person. So you will usually need a new Will.
How A.D.E. Wills can help
A.D.E. Wills is a supporter of Remember A Charity. Edward can talk through your plans for charitable giving and how to divide your estate between your family and the causes you care about. He then drafts your Will so that your gifts are clearly worded. Your draft Will comes with a personalised booklet explaining it clause by clause, so you can check it says what you want before you sign. We charge a fixed fee for Wills, Life Interest Trusts and Letters of Wishes, as set out on our Wills Pricing page.
To talk about including a charity in your Will, call 01865 507174 or email info@adewills.co.uk. You can also read more about our Will writing service.
