Charitable gifts in Wills – the 'hidden' new inheritance tax ('IHT') trap

What appears to be an unintentional effect of amendments to the wording of the IHT charitable contained in Finance Act 2026 which took effect from 6 April 2026 continues to bring uncertainty in relation to the drafting of charitable gifts contained in wills where the testator wishes to maintain some flexibility for executors or trustees to choose which charity should benefit. In the light of this, wills which contain such charitable legacies should be reviewed. 

Many testators wish to include a legacy to charity in their wills. Gifts to charity benefit from a full exemption from IHT provided they satisfy certain conditions, and may even lead to a reduction in the rate of IHT which applies to the taxable part of the estate if (broadly speaking) 10% of the estate passes to charity. Some testators may wish to pass the whole or a substantial part of their residuary estate to charity and might consider establishing a charitable trust under the terms of their will.

However a change in the wording of the charitable exemption contained in section 23 of the Inheritance Tax Act 1984 which was announced in the Budget on 26 November 2025 (and somewhat hidden in a press release entitled 'Inheritance tax: anti-avoidance measures for non-long term UK residents and trusts') has called into question the tax-effectiveness of what up to now had been the accepted method of drafting of a number of such charitable gifts.

The technical paper published in relation to the changes to s 23 states that:

'In line with other taxes, IHT charity exemption will be restricted to gifts made directly to UK charities and community amateur sports clubs. Gifts to trusts which do not meet the required charity or club definition will not be exempted as they may not have a UK jurisdiction or be regulated.'

From this it appears that the main objective of the changes is to make sure that there will be no exemption from IHT where assets may pass to non-UK charities or clubs.  However, the legislative changes, which delete from the scope of the exemption the reference to property which is 'held on trust for charitable purposes only', could be taken to mean that the s 23 exemption will only apply where property passes directly to an identified charity or charities which are already in existence at the time of the gift/death. (There is an equivalent change in relation to gifts to community sports clubs.)

The most common scenario in which the tax relief may be affected is where the executors/trustees are to hold property on trust for 'such charities and in such shares as the executors/trustees shall in their absolute discretion determine'.  Such a gift provides a testator with the opportunity to change his or her choice of charitable recipient(s) from time to time via a letter of wishes without the need for a more formal codicil to change the will.  HMRC in their IHT guidance have accepted that a gift in this form qualifies for the s 23 exemption pending the selection by the executors/trustees of the actual recipient charities.  However, following the changes to s 23, such a gift will arguably not qualify for the exemption.  

Nor it seems will  it be possible to obtain the exemption even if the actual recipient charities are selected within two years of death as this relies on another IHT provision which reads back into a will a distribution from a discretionary trust which is made within two years of death and such provision does not apply where the property is held on exclusively charitable trusts.  Ironically, the amendments to s 23 include a transitional provision which means that the exemption is available where such a form of charitable gift applies on the termination of certain life interest trusts, but this does not apply more generally. 

It is understood that HMRC are reviewing the position and it is hoped that a legislative change will be made address the problem.  In the meantime wills which contain such gifts should be reviewed and changed, either to specify named registered UK charity recipients or to include a discretionary trust for the benefit of charities and non-charitable beneficiaries so that a distribution to the selected charities within two years of  death can be read back into the will and attract the charitable exemption.

Wills which contain a general charitable trust of residue should also be reviewed to ensure that there will be no obstacles to claiming the charitable exemption on death and possible consideration given to establishing a lifetime charity instead.