A reduced rate of Inheritance Tax (IHT) of 36% (reduced from 40%) applies where 10% or more of a deceased’s net estate is left to charity. The lower rate applies where 10% or more of the ‘net value’ of the estate is left to charity.

The current IHT nil rate band is £325,000 per person, below which no Inheritance Tax is payable. Any unused nil rate band can usually be transferred to a surviving spouse or civil partner.

HMRC also have a calculator tool that will help work out the charity donation required to qualify for the reduced rate and will check whether an existing bequest is sufficient to qualify for the reduced rate. The calculator can be found at www.hmrc.gov.uk/tools/iht-reduced-rate/calculator.htm

In order to use the calculator, you will need to know:

  • the value of the assets in the estate;
  • how the assets are owned;
  • the total value of the assets in each part of the estate (‘component’);
  • the value of any debts and liabilities that must be paid out of the estate;
  • the amount of any Inheritance Tax relief and exemptions;
  • the amount of any charitable donations already made;
  • the value of the threshold (‘nil rate band’); and
  • the value of gifts the deceased made in the 7 years before death.

A gift smaller than 10% can also be left to charity in your Will. If this is the case, the charitable donation will be taken off the value of your estate before IHT is calculated.

The donation to charity can be a fixed amount, an item or the balance of what’s left after other gifts have been distributed.

Source:HM Revenue & Customs | 21-08-2023