Leaving cash to charity in your will: How to create a legacy and reduce IHT invoice

What’s your favourite charity? Most people could name a cause dear to them off the top of their heads

It’s not a topic too often discussed though, even among close family or friends.

It can feel too private, or painful if it involves the serious illness of a beloved person, or show-offy to declare what you give to charity during your lifetime.

What is far from uncommon though is naming one or more cherished charities in a will – sometimes to other beneficiaries’ surprise if the deceased kept the contents quiet.

Money and legal experts involved in creating wills or sorting out estates after death believe it is preferable to discuss your charitable intentions in advance with the others who are going to inherit your assets.

There are lots of great reasons to leave money to charity in your will, most obviously because it is a wonderful thing to help others, but it can also be a very rewarding experience to know you are leaving a useful legacy.

You should go into it with your eyes open though because decisions about how you make a charitable bequest will affect how your estate is administered, and there are some pitfalls to avoid which are explained below.

What are your options when including a charity in your will?

You can give a certain sum of money or a percentage of your estate to charity, and it is worth discussing the practical ramifications of each with the lawyer drawing up your will.

A specific amount is officially known as a ‘pecuniary bequest’ and a percentage as a ‘residuary legacy’, says tax and financial planning expert Shaun Moore of Quilter.

The first provides certainty for the charity, your other beneficiaries, and your executors, he says.

But he notes the value of your estate can fluctuate over time due to changes in property values, investment performance or care costs.

‘If your estate decreases significantly, specific bequests may take up a larger share of your assets than you intended, leaving less for your loved ones.

‘Over-allocating your estate to specific gifts could leave less for other beneficiaries, potentially causing disputes among them.’

Meanwhile, leaving say 5 per cent or 10 per cent of your estate to charity allows the gift to adjust based on the total value of your estate at the time of your death, he explains.

Moore says: ‘Deciding between a specific bequest and a residuary legacy can be complex, and it may require careful planning to ensure your wishes are clearly expressed and balanced with the needs of your loved ones.’

Having a charity as a residuary beneficiary means they will be involved in the process until all the rest of the estate is distributed.

Michelle Holgate, senior financial planner at RBC Brewin Dolphin, says: ‘Ensure your will is drawn up correctly. It is important to make sure your will is up to date and clear.

‘I would also encourage people to consider adding why you have and haven’t decided to make any particular gifts.

‘This takes away ambiguity on why you have made a certain decision and could prevent or make it more difficult for someone to appeal the direction of assets from your will.’

Stephen Lawson, partner at IDR Law and member of the STEP body of inheritance advisers, says: ‘Include the correct charity name and number in your will and letter of wishes to help prevent disputes and reduce the burden on your executors.

‘Many charities have quite similar names and if the intended beneficiary is not identified correctly then this can unfortunately result in the cost of an application to court to correct.’ 

Cutting your inheritance tax bill

Not only are gifts to charity exempt from inheritance tax, if you leave a tenth or more of your net estate to good causes you can cut the bill your beneficiaries will have to pay.

Pensions will become subject to inheritance tax from spring 2027, so more people are likely to consider this option to reduce their liability.

‘Estates above the inheritance tax threshold, currently £325,000, are taxed at 40 per cent,’ explains Shaun Moore of Quilter.

‘But leaving at least 10 per cent of your estate to charity reduces the tax rate on the rest of your taxable estate to 36 per cent.’

Michelle Holgate, of RBC Brewin Dolphin, says she often encourages individuals to discuss charitable contributions with beneficiaries and family members.

When the move is intended as part of inheritance tax planning, it is particularly important to explain to family members why you are doing it and the benefits, she reckons.

‘This can be a very complex area of planning with lots of different parts to consider when looking at what does and doesn’t qualify for inheritance tax relief and specialist advice in this area would be highly recommended.’

‘If you plan to leave 10 per cent of your net estate to charity to qualify for the lower rate of inheritance tax on the remaining estate, then I would state that clearly within your will.’

Holgate says sometimes people quote a specific amount of money to go to charity, but as the estate value changes this could fall below the 10 per cent requirement so it doesn’t benefit from the reduced tax rate after all.

‘Make sure you understand the difference between the net and gross division approach,’ she adds.

She explains that because gifts to charities are generally exempt from inheritance tax, it important to stipulate whether an estate is being split between exempt and non-exempt individuals before or after tax is paid on the estate.

‘If none is stated, then the executors will need to decide which could also lead to a dispute between the parties involved and additional costs being incurred.’

Holgate says the net division approach of the gifts being calculated after deduction of inheritance tax is a better outcome for children who are beneficiaries, but not for the charity.

Meanwhile, she explains the gross division approach of gifts being calculated before deduction of inheritance tax will be more beneficial for the charity, and mean a smaller inheritance tax payment but also a smaller gift to children.

Emily Deane, technical counsel at STEP, adds that you should check with a professional that inheritance tax rules have not changed before you rely on them, as this could have costly, unintended consequences.

Should you consider a trust

Only the richest families with abundant funds to hand out to good causes are likely to go to the trouble of setting up their own charitable trust.

Holgate says as well as trusts, you can consider charitable companies or incorporated organisations, to leave a legacy in your own name or to give your family some control over how funds are used in the future.

‘These can be done during your lifetime or potentially through your will on death.’

What are the pitfalls of making a charity bequest

Leaving money to charity requires careful consideration of both the benefits and potential challenges, says Jade Gani, director at the Association of Lifetime Lawyers.

‘Some charities, particularly larger ones, may be persistent in pursuing legacy payments, which could cause stress for your executors or loved ones. This can be mitigated by using a professional to act as a buffer.

‘Unless explicitly stated in the will, the funds may not be used as you intended— for example, larger charities might allocate them to administrative or marketing costs.’

Gani adds that seeking professional advice will minimise complications and maximise the positive impact of your gift to charity.

Emily Deane, of STEP, says: ‘Leaving money to a charity can provide the feel-good factor and be financially savvy, but it is important to make sure that your other beneficiaries will not be negatively impacted.

‘Consider how your family and loved ones will feel if they are unexpectedly excluded. Disputes can arise where family members have been excluded and the deceased has left the majority of their estate to a charity.

‘This is perfectly acceptable if you have valid reasons not to leave money to your family members but you should make sure your adviser and your family, if possible, know why to avoid future litigation.’

Can family members dispute a legacy to charity

Relatives feeling hard done by or cut out entirely from a will, or who simply disapprove of a charity, may not get very far in challenging your wishes.

Stephen Lawson of IDR Law says: ‘As a specialist inheritance dispute lawyer, I only tend to see people when things go wrong. I’m a last resort.’

He has known disputes to arise when the contents of a will come as a shock to family members, or they deem the charity not ‘worthy’.

But Lawson says: ‘Under testamentary freedom, people in England and Wales have the right to choose whoever they want to gift their money to.

‘Family members can only legally contest a charitable donation in a will if they think they are not receiving what they are legally entitled to, or if the will is invalid for some reason – perhaps because the person making the will lacked mental capacity or if it was made as a result of undue influence.’

Got a question about inheritance? Write to [email protected] 

Other ways to support charities

The most obvious alternative to leaving money in your will is to donate to charity now.

In addition to offering valuable support upfront, giving money to a registered charity will be tax efficient while you are still alive.

Charity donations can extend your basic rate tax band, explains Michelle Holgate of RBC Brewin Dolphin.

‘More of your income is taxed at the basic rate of tax rather than the higher rates. The rate of tax paid will depend on the type of income received.

‘In addition to this, there is the opportunity to bring your income out of what is known as the tax trap where 60 per cent tax is paid on income within certain levels.

‘You may be able to reduce your income to qualify for child benefit or to receive tax free childcare entitlement.’

If you are thinking about how to do more good in the world as you get older, and are still in good health and have time on your hands, you can consider fundraising or volunteering for your favourite charity.

Or, should the idea of leaving money to a good cause appeal, but you prefer not to formalise it in your will, you can ask your beneficiaries to donate a specific amount on your behalf after your death.

Another option, which is quite common, is to ask your family to get mourners to donate money to one or more charities in lieu of flowers or wreaths at your funeral.

Funeral directors often handle the donation arrangements and will forward any funds that are collected to the designated good causes.

If you trust your beneficiaries – and you probably do if you are leaving them your money – have a serious conversation about charitable giving, or leave a ‘letter of wishes’ with your will.

Most people take last requests from loved ones very seriously indeed, and would not dream of keeping sums you intended for charity under these circumstances.

What do charities say? 

Lucinda Frostick is director of Remember A Charity, a group of 200 charities.

Giving to charity through your will offers charities the lifeline they need to continue their vital work, enabling causes close to our hearts to thrive long after we’re gone.

 It’s becoming increasingly popular for supporters to give in this way, with one in five of those aged 40+ now including a charity in their will. 

These gifts can bring hope to those in need, fuel groundbreaking research, and provide crucial support to communities, creating a legacy of love, compassion, and lasting change.

Crucially, it’s a meaningful and empowering way to give, enabling people to take care of both their loved ones and good causes for future generations. 

What’s more, there are generous inheritance tax incentives too, making it all the more appealing. Whether donations are large or small, the collective impact on charities that so urgently need our support can be phenomenal.