Leaving money to charity in your will: how it works, and what it costs

Charitable giving in wills is more common than most people realise — Remember A Charity, the umbrella body for charity legacies, puts the figure at around 17% of wills in England & Wales — and the tax position deliberately encourages it. We are not in the business of nudging anyone toward a charity; the choice is yours. But if you are considering it, the mechanics matter, and the tax position is worth knowing in plain language.

The two ways to leave a charitable gift

Either you leave a fixed amount — 'I give £5,000 to The Cats Protection League (registered charity number 203644)' — known as a pecuniary legacy. Or you leave a share of the residue of your estate — 'I give 10% of my residuary estate to Macmillan Cancer Support (registered charity number 261017)' — known as a residuary legacy. Most charities prefer residuary legacies because they hold their value against inflation; pecuniary legacies of £1,000 set down twenty years ago are worth markedly less today.

Always include the registered charity number

Charity names change. Charities merge. Charities occasionally cease to exist. The single most reliable way to identify the recipient is the registered charity number — it follows the organisation through name changes and mergers. Including it in the will (a) makes administration easier for your executor, and (b) usually triggers a 'cy-près' rule if the named charity has ceased to exist, allowing the gift to pass to a successor charity with similar objects. Without the number, ambiguous gifts can fail entirely.

Inheritance tax: charitable gifts are exempt

Anything you leave to a UK-registered charity is fully exempt from inheritance tax. A £10,000 gift to charity costs your estate £10,000 — it does not first attract tax. This is the basic position and it applies regardless of the size of the estate.

The 10% rule: a reduced rate on the rest of the estate

There is a second, less well-known relief. If you leave 10% or more of your 'net estate' (broadly, the estate minus the inheritance tax nil-rate bands) to charity, the rate of inheritance tax on the rest of your taxable estate drops from 40% to 36%. For estates that would have paid IHT anyway, the 10% gift can leave the non-charitable beneficiaries with very nearly the same amount they would have received without it — the relief substantially funds the legacy. The arithmetic is fiddly and depends on the structure of the estate; HMRC publishes a calculator and most solicitors will run the figures on request. Velati's review screen flags when an estate is likely to be in scope and links to the calculator.

Specifying what the charity should do with the gift

You may leave a charity gift either unrestricted (the charity uses it for its general purposes) or restricted to a specific use ('to fund a research project on motor neurone disease at Imperial College London'). Charities often discourage restricted gifts because they reduce flexibility, but they are valid where the restriction is workable. Most large charities will tell you in advance whether a proposed restriction is one they can accept.

If you change your mind

A charitable legacy is no different from any other gift in your will: you can change or remove it at any time by writing a new will or a properly executed codicil. The charity has no expectation of the gift until you die, and you owe it no notice if you change your mind.