Charitable Will trusts may lose IHT relief after Finance Act 2026 change

Gifts to charitable trusts created by a Will may not qualify for the inheritance tax charitable exemption, or for the reduced 36% rate of inheritance tax, where the person dies on or after 6 April 2026GOVTAX. Finance Act 2026 amended section 23(6) of the Inheritance Tax Act 1984Legislation by removing the words that treated property held on trust for charitable purposes, or for purposes of registered clubs, as given to charities or registered clubsLegislation. CIOT and STEP warn that, on one reading of the amended section 23(6), such Will-trust gifts fall outside the exemption even though the funds ultimately benefit qualifying charitiesTAX, and the estate may also lose the lower rate.

The exemption itself is straightforward in outline. Transfers of value are exempt to the extent their value is attributable to property given to charities or registered clubs, under section 23(1) of the 1984 Act. Before the Finance Act 2026 change, property also counted as given to charities where it was held on trust for charitable purposes only; after the change, for transfers on death where the person dies on or after 6 April 2026, only property that becomes the property of charities countsGOV. The reduced rate works alongside it: where the deceased left at least 10% of the net estate to beneficiaries that qualify for charity exemption under section 23(1), the rate of tax is reduced to 36%GOV, and the reduced rate applies only to transfers on death. The difficulty is timing. A charitable trust created by a Will does not exist until the testator diesTAX, and generally cannot complete registration before the grant of probate — yet probate itself cannot be issued until the inheritance tax has been paidTAX. The estate must therefore pay the tax first, while it remains unclear whether any later step can recover relief.

It is not settled whether the executors can take steps after death that preserve relief, for example by registering the charitable trust after death or by paying the funds out directly to registered charities within two years of deathTAX. Executors administering estates for deaths on or after 6 April 2026 are having to act on the basis of uncertain law, and practitioners drafting Wills now are unclear whether existing Will structures need redrafting.

That uncertainty matters because charitable Will trusts are widely used for their flexibility. Leaving a charitable gift on trust allows detailed instructions to be kept in a letter of wishes, which can be updated without the cost and formality of amending the Will and with a greater degree of privacy. A testator can support a particular cause without committing to a specific charity that might change or close.

The Chartered Institute of Taxation and STEP have put these concerns to HMRC, asking for its interpretation of the amended legislation and for immediate guidance. They suggest approaches that could preserve relief without fresh legislation, including recognising charitable status where a trust subsequently registers or accepting a provisional claim to exemption where funds are distributed to registered charities within a specified period. They accept that a legislative amendment may ultimately be the best solution, but argue that practitioners need certainty now to administer estates correctly and keep charitable gifts made through Wills receiving the tax treatment Parliament intendedTAX.

Legal basis: Inheritance Tax Act 1984 s 23 (gifts to charities or registered clubs), as amended by Finance Act 2026 ss 78-79Legislation; the reduced 36% rate applies as described in HMRC's Inheritance Tax Manual.