Comparison · Inheritance Tax · 2026/27
IHT Charity Rate (36%) vs Standard Rate (40%): Is Leaving 10% to Charity Worth It?
Leave at least 10% of your baseline estate to charity and the Inheritance Tax rate on the rest drops from 40% to 36%. This guide explains the baseline calculation, works through examples with the 2026/27 nil-rate bands, and looks at whether the reduced rate genuinely leaves more for your family.
TL;DR -- 2026/27 IHT Key Figures
- • Nil-rate band: £325,000 (frozen until April 2030)
- • Residence nil-rate band: £175,000 (tapers above £2m estate)
- • Standard IHT rate: 40% on the taxable estate above the nil-rate bands
- • Reduced charity rate: 36% if at least 10% of the baseline estate goes to charity
36% Charity Rate vs 40% Standard Rate: Head-to-Head
| Feature | 36% Charity Rate | 40% Standard Rate |
|---|---|---|
| Qualifying condition | Gift ≥ 10% of baseline estate to charity | No minimum charitable gift required |
| Amount reaching family | Reduced by the charitable gift, offset by lower tax | No charitable gift lost, but higher tax rate |
| Nil-rate bands | £325,000 + £175,000 RNRB still tax-free | £325,000 + £175,000 RNRB still tax-free |
| Charity benefits | Receives at least 10% of baseline estate | Receives nothing (unless gift specified separately) |
| Complexity | Requires baseline calculation, possible Schedule 1A election | Simple -- flat 40% on the taxable estate |
Worked Example
An estate is worth £1,000,000. There is no residence nil-rate band available (say the home passes to a sibling, not a direct descendant), so only the £325,000 nil-rate band applies. The baseline estate is £1,000,000 - £325,000 = £675,000.
| Scenario | No charitable gift (40%) | 10% to charity (36%) |
|---|---|---|
| Charitable gift | £0 | 10% x £675,000 = £67,500 |
| Remaining taxable estate | £675,000 | £675,000 - £67,500 = £607,500 |
| IHT due | 40% x £675,000 = £270,000 | 36% x £607,500 = £218,700 |
| Left for family | £1,000,000 - £270,000 = £730,000 | £1,000,000 - £67,500 - £218,700 = £713,800 |
In this example, choosing the charity rate leaves the family £16,200 less than paying the standard 40% rate with no gift -- but the charity receives £67,500 it would not otherwise have had. The reduced rate is not a guaranteed net gain for the family in every case; it depends heavily on the estate size and the value of the charitable gift relative to the tax saved. Anyone with a genuine charitable intent gets a meaningful tax discount on the rest of the estate; anyone motivated purely by minimising the bill to their heirs should model their own numbers precisely.
Frequently Asked Questions
Frequently Asked Questions
What is the reduced 36% Inheritance Tax rate?
Leaving at least 10% of the 'baseline' net estate to charity in a will cuts the IHT rate on the rest of the taxable estate from the standard 40% to 36%. The baseline is calculated after the nil-rate band (£325,000) and residence nil-rate band (£175,000, where it applies), but before the charitable gift is deducted.
How is the 10% baseline test calculated?
The baseline estate is the chargeable estate value, before the charitable gift is deducted, minus the nil-rate band, residence nil-rate band, and any transferable bands from a deceased spouse. The charitable gift must be at least 10% of that baseline figure. Estates with multiple components (general, survivorship, settled) are tested separately unless an election to merge is made.
Does the 36% rate apply to the whole estate?
No -- only to the taxable part above the combined nil-rate band and residence nil-rate band, after the charitable legacy is deducted. The nil-rate bands themselves stay tax-free regardless of the rate applied to the remainder.
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Is leaving 10% to charity always better financially for the family?
Not always. The estate permanently loses the 10% given to charity, but the tax rate on what remains drops from 40% to 36%. The net effect on the amount passing to family depends on estate size and asset mix -- model both scenarios rather than assume the reduced rate is automatically a net gain for heirs.
Can you elect to merge or split parts of the estate for the 10% test?
Yes. Personal representatives can elect under IHTA 1984 Schedule 1A to merge estate components (will, survivorship, trust) so the 10% test is met overall, even if one component alone would not qualify. This election must usually be made within two years of death.
How does the residence nil-rate band affect the calculation?
The RNRB adds £175,000 (2026/27) on top of the £325,000 nil-rate band when a main residence passes to direct descendants. Both are deducted before working out the baseline used for the 10% charity test. RNRB tapers by £1 for every £2 of estate value over £2 million.
Do charitable gifts reduce IHT even below the 10% threshold?
Yes. Any gift to a qualifying UK charity is fully IHT-exempt regardless of size and is deducted from the estate before the standard 40% rate applies to the remainder. The 36% rate is an extra benefit only available once the gift reaches 10% of the baseline.
Should I get professional advice before relying on the 36% rate?
Yes -- the baseline calculation is complex, especially with trusts, joint property, or a transferred nil-rate band from a spouse. A solicitor or IHT specialist should confirm the exact baseline figure and check the 10% threshold is met before the will is finalised.
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Disclaimer: This comparison is for general information based on 2026/27 Inheritance Tax rates and HMRC guidance on the reduced rate for charitable legacies (IHTM45000 onwards). Estate calculations, especially involving trusts or multiple estate components, can be complex. Consult a solicitor or IHT specialist before finalising a will.