Reduced rate of IHT for estates leaving gifts to charity

Produced by a Tolley Trusts and Inheritance Tax expert

Trusts and Inheritance Tax

Guidance

Gifts to charity benefit from full exemption from inheritance tax. See the Exempt transfers for IHT guidance note.

Where the disposition of a deceased estate includes a gift to charity, part or all of the remaining taxable estate will benefit from a reduced rate of inheritance tax, if the required conditions are met. The rate is reduced from 40% to 36% on the qualifying portion of the estate.

This relief applies where the death occurs on or after 6 April 2012.

Conditions for the reduced rate

The reduced rate applies to the non-exempt part of one or more components of the estate if gifts to charity make up 10% or more of a baseline amount of the components in question. The baseline amount is the value of the component, including the charitable gift, but after the deduction of liabilities, IHT reliefs, other exemptions, and the nil rate band.

The mechanics of the valuation are described below.

The estate is divided into components as follows:

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