Most people who leave money to charity in their will do so because they care about the cause. Fewer realise that doing so can also reduce the inheritance tax their family pays, sometimes by enough that the family ends up better off financially than they would have been without the charitable gift. It is a relief built into the tax system by design, available to any estate that meets the qualifying conditions. For families navigating the intersection of charitable wishes and tax planning during probate, probate assistance from an experienced professional ensures the calculations are done correctly and the relief is properly claimed.

The mechanism is straightforward. Under rules introduced by the Finance Act 2012, if an estate leaves at least 10% of its “baseline amount” to qualifying charities, the rate of inheritance tax on the remaining taxable estate drops from 40% to 36%. Four percentage points might not sound dramatic, but on a large estate the numbers add up quickly, and in some cases the family actually inherits more by giving more away.

How the 36% Rate Works in Practice

To understand the relief, you need to understand a few terms. The “baseline amount” is not the total estate value. It is the value of the estate after deducting the nil-rate band (£325,000 per person, frozen until at least April 2030), the residence nil-rate band (£175,000, if a qualifying home is passed to direct descendants), and any other exemptions such as the spouse exemption.

Here is a worked example. Suppose a widower dies in 2026 with an estate worth £900,000. He has the benefit of his own nil-rate band (£325,000) and residence nil-rate band (£175,000), giving a combined threshold of £500,000. His taxable estate, the baseline amount, is £400,000.

Without a charitable legacy: IHT at 40% on £400,000 = £160,000. Family receives £900,000 minus £160,000 = £740,000.

With a 10% charitable legacy: 10% of £400,000 = £40,000 to charity. Remaining taxable estate = £360,000. IHT at 36% on £360,000 = £129,600. Family receives £900,000 minus £40,000 minus £129,600 = £730,400.

In this example, the family receives £9,600 less after the charitable gift. The charity receives £40,000 and the tax bill drops by £30,400. For someone who was already planning to leave something to charity, the reduced rate means the effective cost of the gift is much less than it appears.

But the arithmetic changes on larger estates or where the charitable gift was going to happen regardless.

When Giving More Away Means the Family Keeps More

The crossover point, where the family actually receives more by triggering the 36% rate, depends on the size of the taxable estate and how close the charitable gift already was to the 10% threshold.

Consider a different scenario. A widow dies with a taxable estate of £600,000 and has already decided to leave £50,000 to charity (8.3% of the baseline). At 40%, the IHT on the remaining £550,000 would be £220,000, leaving the family with £130,000 after the £50,000 charity gift and £220,000 tax.

If she increases the charitable gift to £60,000 (exactly 10%), the 36% rate applies. IHT on £540,000 at 36% = £194,400. The family now receives £600,000 minus £60,000 minus £194,400 = £345,600, compared to £330,000 without the increased gift. By giving an extra £10,000 to charity, the family ends up £15,600 better off.

This counterintuitive result is exactly why the relief exists. It incentivises charitable giving by making it financially rational, not just emotionally satisfying.

The Technical Details That Matter

The 10% test is applied separately to three components of the estate: the “general component” (free estate), jointly owned assets, and assets held in trust. Each component is tested independently. An estate might qualify for the reduced rate on one component but not another.

This matters because many families hold assets jointly or in trust structures. If the charitable gift comes from the general estate but the jointly held assets push total IHT liability higher, the calculation is not as simple as taking 10% of the headline figure.

Executors can also elect to merge components, treating them as a single pot for the 10% test. This is sometimes beneficial, sometimes not, depending on the relative sizes and the distribution of the charitable gift. It is one of the areas where professional input during probate administration pays for itself.

Any gift to a registered UK charity is fully exempt from IHT, regardless of whether the 36% rate applies. The reduced rate is an additional benefit on top of the exemption, not a replacement for it. Even gifts that fall below the 10% threshold still come out of the estate before IHT is calculated.

Common Mistakes

The most frequent error is assuming the 10% test is based on the total estate value rather than the baseline amount. Families sometimes leave what they believe is a generous charitable gift, only to find it falls short of the threshold because the calculation starts after deducting nil-rate bands and exemptions.

Another mistake is failing to claim the relief at all. The reduced rate is not applied automatically. It must be claimed on the IHT return (form IHT400), and the executor must include the relevant supplementary schedule (IHT430). Missing this means paying 40% when 36% was available.

Finally, the wording of the will matters. A gift described as “10% of my estate to charity” may not produce the intended result if “estate” is interpreted differently from “baseline amount” for the purposes of the relief. Precise drafting by a solicitor familiar with the relief ensures the intention and the outcome match.

Combining Charitable Giving With Other Planning

The 36% rate works alongside other IHT planning strategies, not in isolation. Lifetime gifts, trusts, business property relief, and the spouse exemption all interact with the charitable relief calculation. The order in which reliefs and exemptions are applied can affect whether the 10% threshold is met.

For families going through probate who find that the deceased’s will includes a charitable gift close to the 10% threshold, it is worth checking whether a small variation to the estate distribution, agreed by all beneficiaries through a deed of variation within two years of death, could tip the balance and trigger the lower rate. This is perfectly legal and can benefit both the family and the charity.

Getting the numbers right requires careful calculation during probate administration. The savings are real, but they depend on precision, something that is worth getting professional help with rather than leaving to chance.