Why charitable giving could become an important part of your estate planning

Upcoming changes to Inheritance Tax (IHT) mean that, from April 2027, pensions will be included in an estate’s value on death.

For some, this could tip their estate into the scope of IHT, where it would previously have been within the threshold. For others, it could lead to a larger IHT liability.

We want to help you create the most tax-efficient strategy for your wealth, so you can enjoy your hard-earned money and one day your loved ones can benefit too. And choosing to include a charity as one of your beneficiaries could be a way to do this.

Charitable gifts are exempt from IHT and, in certain circumstances, can even reduce the rate of IHT your estate pays.

Read on to find out how to support your favourite causes, at the same time as potentially lowering your IHT liability.

New rules include pensions in the scope of Inheritance Taxentially increasing liability for some estates

IHT is applied to certain estates after the owner’s death, but the rules surrounding how much the estate is liable for can be complex.

For the 2025/26 tax year, your estate can be worth up to £325,000 (known as the “nil-rate band”) before it falls into the scope of IHT, which is usually applied at 40%. Even then, if you leave your property to your children, stepchildren or grandchildren, this threshold extends to £500,000 thanks to the “residence nil-rate band”.

And if you leave everything above the £325,000 threshold to your spouse or civil partner, there won’t be any IHT liability at all.

The chancellor has announced that these thresholds will be frozen until at least 2030.

However, from 6 April 2027, certain pensions will be included in an estate for IHT purposes, which is likely to mean a greater proportion of estates will either become liable for IHT or face a higher tax bill.

According to Royal London, estimates show that 10,500 estates will pay IHT for the first time, while 38,500 will pay more IHT under the new rules.

Charitable giving is exempt from Inheritance Tax, and could reduce the amount an estate has to pay

Productive estate planning means establishing the most tax-efficient ways to leave your wealth after you die, including how to minimise any IHT liability. This is where charitable giving could play a key role.

Any gift to charity left in your will is exempt from IHT. If your charitable donations form more than 10% of your estate, your IHT liability could be reduced from 40% to 36%.

You can choose to leave a proportion of your wealth to your chosen charity in several different ways. These include:

• • A fixed monetary amount
  • Specified items
  • As the remainder of your estate, once your beneficiaries have received their gifts.

You’ll need to check that your chosen charity or charities are recognised as a charity by HMRC for tax purposes. You can do this by searching the Charity Commission’s online database for England and Wales, which will also give you information about its trustees, and let you know if any actions have been taken against it that might influence your decision-making.

Having a valid will is vital to ensure your wishes are followed to the letter. You should also review this regularly to make sure it still reflects your intentions, and now could be a good time to consider adding a charitable donation.

Legacy awareness organisation Remember A Charity has found that already the upcoming IHT changes are influencing gift-giving.

Its research discovered that:

• • 60% of professional advisers have received more requests for advice about estate planning since the changes were announced.
  • 65% say that the charitable tax incentives will become even more important to their client base
  • 62% think more people will consider leaving a gift to charity.

And, of course, the benefits aren’t just financial.

Creating a lasting legacy that reflects your values is a key part of charitable giving

Giving to charity after your death isn’t just about reducing your IHT liability. It’s a lovely way to leave a legacy that lives on, supporting a cause or causes that have meant a lot to you in life.

It’s a win-win situation, benefiting your chosen charity and with the added advantage of potentially lowering the IHT burden on your estate.

Get in touch

Estate planning has always been a fundamental part of a solid financial strategy. Regular reviews can ensure that your plan is on track, reflects your goals and values, and is as tax-efficient as possible.

If you’d like to talk to us about estate planning, or to review your financial plan in line with the upcoming changes, please get in touch. Email us at info@harperlees.co.uk or call 01277 350560, and we’ll be very happy to help.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

The Financial Conduct Authority does not regulate estate planning, tax planning, or will writing.