The Legacy Giving Report 2026, produced by Smee & Ford together with Legacy Futures, found that charitable legacy income reached an estimated £4.4bn in 2025 and is forecast to rise to £5bn by 2029, a growth rate of 4.5% p.a. In a challenging fundraising environment, the legacy market remains remarkably robust. Now, a seemingly innocuous amendment to the Inheritance Tax Act could have a significant impact on estate planning and administration.
For a testator, there is potentially a 'three-fold benefit' to making charitable gifts by Will: first, a philanthropic individual can make gifts to causes close to their hearts which are larger than they might have afforded in their lifetime; second, the gift is exempt from Inheritance Tax (IHT); and third, where the gift represents 10% or more of the estate subject to IHT, the estate may qualify for a reduced IHT rate of 36% rather than the usual 40%.
Testators typically make charitable gifts either to named charities (as specific bequests, legacies or shares of residue) or by way of a 'general charitable gift', which sets aside a sum for charitable giving whilst granting executors/trustees discretion over which charities receive a share. General charitable gifts commonly express charitable purposes to be benefitted and are backed by a letter of wishes. This structure enables charitable funds to be held and managed for longer, with trustees able to benefit charities not in existence when the trust was created.
So, what has changed?
The Finance Act 2026 introduced several changes affecting future estate planning, most notably the tax treatment of pensions from April 2027 and changes to Agricultural and Business Property Relief. A smaller, less-noticed amendment was made to s.23 of the Inheritance Tax Act 1984.
Previously, s.23(6) IHTA 1984 granted IHT exemption on gifts to charities that either (a) became the property of UK registered charities, or (b) were held on trust for charitable purposes only. Part (b) enabled general charitable gifts to qualify for IHT exemption and arguably allowed provision for non-UK organisations whose purposes were charitable under English law. It is this second element the government sought to address.
The Finance Act has removed part (b) for deaths on or after 6 April 2026, so IHT exemption is now only available where gifts go directly to existing UK registered charities and community amateur sports clubs. General charitable gifts will no longer automatically qualify for IHT relief, meaning they will be subject to IHT and, even if large enough, will not qualify the estate for the reduced rate.
A more targeted approach disapplying relief to foreign charities specifically would have been possible, and it is not clear why a more targeted approach wasn't taken here. Perhaps it is because the Government's policy paper anticipated the change affecting relatively few individuals. Our experience of estate planning and administration suggests the number of affected testators will be considerably higher than anticipated.
What is the impact?
It remains to be seen how HMRC will treat estates containing general charitable gifts. Currently, it is anticipated that HMRC will treat such gifts as subject to IHT unless presented with a Deed of Appointment evidencing a distribution of trust funds to named charities within two years of death. This appointment benefits from the 'reading back' provisions, allowing the gift to be treated as though made by the Will for IHT purposes.
In some cases, executors/trustees may need to pay an IHT liability and reclaim it once the appointment has taken place. This approach could be fraught with difficulties around liquidity, cash flow and interest charges.
Charities working with legacy donors should encourage them to review their Wills and estate planning promptly and consider how they wish to structure their charitable giving. If an individual still wishes to create a fund lasting more than two years, options include leaving the gift to a grant-making UK registered charity for general charitable purposes, a community foundation, or a donor-advised fund with expressed wishes regarding future use. A testator might also consider creating their own charity during their lifetime.
Where a testator dies with a general charitable gift in their Will, executors/trustees will need to act quickly to secure IHT exemption and avoid charitable funds being lost to tax. Trustees wishing to run funds for charitable purposes could consider registering as a charity themselves or appointing funds to charities that can make onward grants.
For charities, there may be some benefit to the change. Gifts to UK charities still attract IHT relief, so charitable giving is not disincentivised. Indeed, for charities and professional advisers working with testators, the change, alongside other IHT changes, is likely to prompt deeper conversations around structuring philanthropy.
Additionally, the change may mean charities receive post-death funds sooner, as the potentially onerous IHT impact of leaving a gift in a general charitable trust will strongly encourage trustees to appoint funds out promptly after death, and certainly within two years. This avoids funds languishing unused in trusts for long periods of time.
The priority for individuals, executors and trustees is to take prompt professional advice and carefully consider how best to structure post-death charitable giving. For charities working with legacy donors, executors and trustees, this is an opportunity to open the conversation and encourage timely action.
