Thresholds and rates
The inheritance tax charity rate: 36 % when a tenth goes to good causes
A legacy to charity is free of inheritance tax, and a large enough one also lowers the rate on everything else. The size that counts is measured against a figure HMRC calls the baseline.
An estate pays inheritance tax at 36 % instead of 40 % when gifts to charity are at least 10 % of its baseline amount. HMRC's manual at IHTM45009 defines the baseline as the estate after exemptions, less whatever nil-rate band is left, with the charity gift then added back; the residence nil-rate band is not taken off. In HMRC's own example, which this site's engine reproduces, a single person leaves £750,000 with £50,000 to charity. The baseline is £425,000, the test needs £42,500, the gift passes, and the tax is £135,000 rather than £150,000. With no gift at all the bill would have been £170,000, so the family receives £565,000 instead of £580,000: the charity gets £50,000 for a cost to the heirs of £15,000. From 6 April 2027 a pension can be nominated to a charity too, and it counts towards the test.
The 36 % rate with 10 % to charity
Heirs receive
£564,840
| Rate applied | 36 % |
| Inheritance tax | £134,910 |
| To charity | £50,250 |
| Heirs with no gift | £580,000 |
Law read and sums checked by Radif Partners · Editorial policy · How the tax is worked out
Ten per cent of what? The baseline amount
HMRC explains the arithmetic of the reduced rate in its manual at IHTM45009. The measure is not the estate on the day of death and not the amount the heirs inherit. It is a figure built in three steps. Start from the estate after exemptions, which means after the charity legacy itself and after anything left to a spouse or civil partner has been taken out. Take off the nil-rate band that is still available, including any band transferred from a late spouse and after lifetime gifts have used their share. Then add the charity gift back on. The result is the baseline, and the legacy passes when it is 10 % of that figure or more.
Two consequences follow, and they pull in opposite directions. Because the nil-rate band is deducted, the baseline is smaller than the estate, so the share of the estate needed is below a tenth: for HMRC's £750,000 example the engine finds that 5.7 % of the estate is enough. Because the residence nil-rate band is not deducted, a family home left to children does nothing to lower the target, even though it lowers the tax. The rate then applies to the whole taxable part of that component of the estate, not just to the slice above some marker.
HMRC's £750,000 estate, run through the engine
The manual's worked example at IHTM45010 is short: an estate of £750,000 with £50,000 to charity and no residence band. The engine takes the same inputs and produces the same answer, which is how the site checks its own code against HMRC's.
| Step | Amount |
|---|---|
| Estate after debts | £750,000 |
| Charity legacy (exempt) | £50,000 |
| Chargeable estate | £700,000 |
| Nil-rate band available | £325,000 |
| Baseline: chargeable less band, plus the legacy | £425,000 |
| 10 % of the baseline | £42,500 |
| Rate applied | 36 % |
| Inheritance tax | £135,000 |
| Same estate at the full rate | £150,000 |
The saving on the rate is £15,000. Measured against an estate that leaves nothing to charity, which pays £170,000, the tax falls by £35,000, and the family's share drops from £580,000 to £565,000. Put another way, each pound the charity receives costs the heirs about 30 % of a pound.
Why a home left to children makes the target bigger
Take a single person who dies after 6 April 2027, under 75, with a £400,000 home going to two children, £500,000 of savings and a £300,000 pension that now sits inside the estate. The legacy is a share of the home and savings. The table shows what happens as the share rises, with the residence band fully available because the estate is under £2,000,000.
| Share to charity | Legacy | Baseline | Rate | Inheritance tax | Two heirs together |
|---|---|---|---|---|---|
| 0.0 % | £0 | £875,000 | 40 % | £280,000 | £920,000 |
| 5.0 % | £45,000 | £875,000 | 40 % | £262,000 | £893,000 |
| 8.0 % | £72,000 | £875,000 | 40 % | £251,200 | £876,800 |
| 9.8 % | £88,200 | £875,000 | 36 % | £220,248 | £891,552 |
| 12.0 % | £108,000 | £875,000 | 36 % | £213,120 | £878,880 |
| 20.0 % | £180,000 | £875,000 | 36 % | £187,200 | £832,800 |
The baseline here is £875,000. Had the residence band of £175,000 been allowed to come off as well, the legacy needed would have been £70,000; as the law stands it is £87,500, which the engine reaches at 9.8 % of the home and savings. The pension adds to the baseline in full, because HMRC's technical note places notional pension property in the general component, alongside the free estate. A family whose pension used to sit outside the estate may therefore find that a legacy written years ago no longer clears the test after 6 April 2027.
Leaving part of a pension to charity
Section 69 of the Finance Act 2026 extends the charity exemption in section 23 to pension benefits, so a lump sum paid by the scheme to a charity escapes inheritance tax in the same way as a legacy in a will. The technical note adds two points: the charity lump sum death benefit is tax free even when the member was 75 or over, and it counts towards the 10 % test. For deaths at 75 or over that matters twice, because the slice going to charity also avoids the income tax that heirs would have paid on it.
The engine treats the nominated slice like a legacy, which matches the rule. Here the member dies at 80 with the same estate, and £90,000 of the pension is nominated to a charity; the two children each have £40,000 of other income and draw their shares over four tax years.
| Whole pension to the children | £90,000 of it to a charity | |
|---|---|---|
| Rate applied | 40 % | 36 % |
| Inheritance tax | £280,000 | £219,600 |
| Income tax paid by the children on the pension | £75,568 | £50,950 |
| The two children keep | £844,432 | £839,450 |
The charity receives £90,000 and the children's combined share falls by £4,982. Part of the gap is closed by the rate, part by the income tax the charity's slice no longer bears. A will legacy of the same size from savings would have given the same inheritance tax but left more pension, and so more income tax, with the children.
Is there a level where the heirs lose nothing?
A claim often repeated is that a tenth to charity costs the family nothing. The engine was asked to look for that point by stepping the legacy up one tenth of a per cent at a time on both estates above, and it found none: at every size, the heirs receive less than with no legacy. On the family estate they keep £920,000 with nothing to charity and £891,552 with the smallest legacy that qualifies.
The loop does find a different threshold, and it is the useful one. Any legacy between 5.3 % and 9.8 % of the home and savings leaves the heirs with less than the qualifying legacy of 9.8 % would, because it pays the full rate on everything. At 5.3 % the children keep £891,380, against £891,552 once the gift is large enough. Inside that band, a bigger gift gives both the charity and the family more. Below it, the reduced rate is simply not worth chasing on tax grounds, and a legacy is a choice made for its own sake. The width of that band depends on the estate, which is why the calculator above lets the share move freely: on a smaller estate with less above the nil-rate band, the qualifying legacy is smaller and so is the zone where topping it up pays for itself.
Points the calculation leaves out
The engine assumes the whole estate forms one general component, the part that holds savings, the home and, from 6 April 2027, the pension, which is where HMRC's technical note puts notional pension property. It also assumes the legacy is a share of the free estate after debts, so its value moves with the estate; a fixed sum written into a will stays where it is while the baseline rises or falls with property prices and the pension. The bands themselves are those of GOV.UK: a nil-rate band of £325,000 and a residence band of up to £175,000, frozen until 5 April 2031, which means a baseline built on a growing estate keeps growing too.
Nothing here is a recommendation to leave money to charity or to restructure a will. Wording, scheme nominations and the order in which components are measured are technical, and a solicitor, the personal representatives or a regulated adviser are the people who check a real estate. To see the reduced rate on your own figures, the estate calculator accepts a charity share, and the threshold guide explains the bands it starts from.