Families have saved £1.28 billion in inheritance tax by making charitable gifts, according to HMRC data. The figure marks an 88 per cent increase from £680 million in the 2020-21 tax year to just over £1.28 billion in 2025-26.
This surge comes as the Labour government's inheritance tax changes took effect. Under HMRC rules, when more than 10 per cent of an estate is left to charity, the inheritance tax rate reduces from 40 per cent to 36 per cent. This relief has allowed wealthy families to reduce their tax liability while supporting charitable causes.
Government policy and frozen thresholds
Under Prime Minister Andy Burnham, the standard £325,000 nil-rate band (NRB) and the £175,000 residence nil-rate band (RNRB) will remain frozen until 2031. This means more estates are likely to fall within the inheritance tax net, prompting families to explore charitable giving as a tax-planning tool.
Financial experts have noted a significant rise in interest in estate planning strategies. Sarah Coles, of stockbroker AJ Bell, said: “People will be considering how to protect their estate from this much-hated tax, whether that’s by making gifts during their lifetime or bequeathing money to charity in their will.”
Types of charitable gifts in wills
There are three main types of gift to consider when planning a will. The first is a share of your estate (a residuary legacy) to be made after debts, funeral costs and other legacies have been paid. Other examples are a specific amount of money (a pecuniary legacy), which can be index-linked to protect its value, and a particular item (a specific legacy), which can be sold or used by the recipient.
Ian Dyall, head of estate planning at wealth management firm Evelyn Partners, said: “We have seen a huge increase in interest in making gifts, often from [defined contribution] pension funds that were previously being preserved as they currently are not subject to inheritance tax.”
Official response and impact
A Labour Party and HM Treasury spokesman said: “The UK has a proud history of charitable giving and the tax system rightly helps support those who choose to donate. These reliefs are working as intended, encouraging donations and helping charities continue their vital work.”
The increase in charitable giving reflects a broader trend of families seeking to mitigate inheritance tax liabilities. With thresholds frozen until 2031, the incentive to use charity reliefs is likely to remain strong, benefiting both donors and the charitable sector.
