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

Amendments to the wording of the IHT charitable exemption will potentially bring discretionary charitable gifts contained in wills within the charge to IHT from 6 April 2026, unless action is taken within the two years following death. Wills which instruct executors or trustees to choose which charity should benefit should be reviewed in the light of this.

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 introduced 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') may call into question the tax-effectiveness of the accepted 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.  This qualifies as a trust for charitable purposes and so would currently fall within the s23 exemption pending the selection by the executors/trustees of the actual recipient charities.  Following the changes, which are already in force in relation to lifetime gifts and will take effect on 6 April 2026 in relation to wills, such a gift will arguably not qualify for the exemption until the selection has been made.  

In practice, it should be possible to obtain the exemption provided the actual recipient charities are selected within two years of death, but unless the selection can be finalised before the application for probate is made, this may give rise to the need to pay more IHT at the outset and then reclaim it, which may result in cash flow issues.  Moreover, a number of such gifts will not contain any time limits for making the selection so that executors/trustees may not be aware of the two-year window and thus risk losing the tax exemption or reduced rates of IHT for the rest of the estate altogether.

Wills which contain such gifts should therefore be reviewed and changed, either to specify named registered charity recipients or to include a time limit for making the selection.

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.