A small, and seemingly innocuous, change to the Inheritance Tax Act in April 2026 potentially has very significant adverse consequences for gifts to charities in a person’s will.

Many testators will leave a gift to a charity in their will.  Testators have an incentive to do so since gifts to charities are exempt from inheritance tax.  Furthermore, if the gift is large enough (broadly, 10% or more of the amount that would otherwise be subject to inheritance tax) then the estate qualifies to pay inheritance tax at the rate of 36%, rather than 40%.  In that case, the effective rate of inheritance tax relief on the gift can be as much as 76%.  Gifts to charities in wills are very effective to save inheritance tax.

Sometimes, a testator will have a specific charity, or a number of specific charities, who he or she wishes to benefit, and will name those charities in his or her will.  Quite often, however, the testator would prefer to leave open which specific charities should benefit, and will therefore leave the executors some discretion over which charities should benefit (guided, perhaps, by a letter of wishes).  A common will clause might say something like “I give to such charity or charities (exclusively charitable according to the law of England and Wales) as my executors shall select, for their charitable purposes, the sum of £[amount]”.

What is the issue?

The Finance Act 2026 changed the inheritance tax exemption for charitable gifts made by will. Gifts on charitable trusts may no longer qualify for relief, and the absence of effective transitional provisions means the exemption may not apply upon the testator’s death.

The Inheritance Tax Act 1984 s 23(1) exempts transfers of value ‘to the extent that the values transferred by them are attributable to property which is given to charities’.

Until recently, IHTA 1984 s 23(6) provided that property was ‘given to charities’ if it either

(a) became the property of charities or

(b) was held on trust for charitable purposes only.

Finance Act 2026 removed the second ‘leg’ of that definition.  Gifts to charities are only exempt if they ‘become the property of charities’.

There is a long and convoluted background to this change, which traces its roots back to a case decided in the Court of Appeal in 2016 (Routier v RCC).  In that case, the deceased had left a gift to foreign trustees for purposes that were accepted as being charitable under English law. The gift could not be exempt from inheritance tax under the first leg of the charity exemption (because the definition of ‘charity’ for the purposes of that leg only encompasses UK registered charities).  It was argued however that the gift was exempt from IHT under the second limb (because ‘for charitable purposes’ could include a foreign charity, provided it was charitable according to English law).  The case was ultimately decided in favour of the taxpayer in the Supreme Court on separate grounds relating to EU law (which is no longer applicable) but the underlying argument remained.

Using a shotgun to hit the bullseye

As is so often the case, the government has ‘used a shotgun to hit the bullseye’.

In order to disapply charity relief for gifts to foreign charities, the government has removed the second ‘limb’ of the definition of ‘charity’ for IHT purposes.

The explanatory notes to the relevant clause of the Finance (No.2) Bill 2025-26 described the measure as an ‘anti-avoidance change’.  There are more targeted measures the government could have introduced to achieve the same result (e.g. requiring the trustees of any charitable trust to be UK resident trustees), but the government has seen fit instead to introduce a wider measure.

The apparent effect of the amendment is that only gifts to existing, registered charities now qualify for exemption. The absence of any effective transitional provisions means that nothing can be done after the testator’s death to rescue exemption for a gift on charitable trusts. As a result, a significant number of existing wills may now require urgent review.

Potentially, there are steps that could be taken post death to rescue the exemption.  The executors could register the gift to charity in the will as a charity in its own right.  Further or alternatively, the executors could distribute the charitable legacy to registered UK charities post death as quickly as possible and claim that, therefore, the charity legacy was ‘given to charity’.   As it stands, such courses of action are very far from being guaranteed to be successful.  If HMRC were to challenge the exemption then the executors would need to litigate, and the result would depend on the attitude of the court.

What does this mean in practice

Anyone who has left a gift to charity by their will should review their arrangements in light of the change in legislation and consider amending their will so the gift will unambiguously be within the charity relief exemption.  In practice this means naming an existing UK registered charity (or charities) to receive the gift.

In terms of flexibility, the following options remain available:

• The testator can regularly review the terms of their will and make changes by codicil if their wishes change;
• The testator can open an account with CAF (the Charities Aid Foundation) and leave their gift to CAF;
• The testator can establish their own UK registered charity during their life and leave the gift to that charity;
• The testator can leave a gift to some other registered UK charity, which is registered for general charitable purposes, on the basis that the charity will have regard to the testator’s wishes when deciding what to do with what it receives; or
• The testator could create a more flexible discretionary trust in their will (including beneficiaries other than charities) and rely on their chosen trustees to make a payment to their preferred charities within two years of their death (since, under inheritance tax rules, those payments will be ‘read back’ into the will).

Introducing – the PCS Foundation

Private Client Solicitors has previously established a charitable foundation, which exists for general charitable purposes, called the PCS Foundation.  PCS Foundation is a separate legal entity to Private Client Solicitors, registered with the Charity Commission and (in accordance with Charity Commission rules) it is independent from PCS.

Clients of PCS can, if they wish, leave a gift to the PCS Foundation, alongside a letter of wishes, in the knowledge that the trustees of the PCS Foundation will do their best to give effect to the testator’s wishes.  In practice, the trustees of the Foundation will be able to discuss matters with a solicitor at PCS who can provide additional guidance, if necessary, having regard to their personal knowledge of the testator where relevant and/or the information in the client’s will file.

How we can help

We can go through the advantages and disadvantages of each of the options referred to above and assist clients to amend their will, to retain the benefit of the charity exemption, while retaining flexibility over the ultimate destination of their gift, if that is what they want.