Charitable Legacies: A Rise in Income But Caution Required

Testators are increasingly willing to leave charitable legacies under the terms of their wills.

This is undoubtedly in response, in part at least, to private client practitioners routinely raising the option with clients.

But it’s also a valuable way to reduce an estate’s potential inheritance tax (IHT) liabilities on death – and, of course, to make valuable contributions to charitable organisations that have perhaps personal benefitted them or their loved ones.

According to one firm’s recent analysis of HMRC’s data, the value of charitable legacies of more than ￡1m increased by 33% to ￡1.1bn from ￡850m in the last year. In December 2024, TWM Solicitors also found that donations exceeding ￡1m to charities represent 54% of the ￡2.1bn left to charity in wills last year.

It’s not the only research that demonstrates clearly the philanthropic tendencies of many wealthy (and less wealthy) individuals. The latest Legacy Foresight report (for 2023-3024) reveals that legacy income for charities in the UK increased by 1.3% to ￡4.1bn during that year. It was a relatively small increase – following a similarly modest increase for the previous year – but Legacy Foresight anticipates legacy income will exceed ￡10bn a year by 2050.

It's clear will-makers are increasingly generous towards charities. The tax advantages can be significant – preserving assets for the testator’s loved ones; but it’s important to remember that the tax rules applicable to charitable gifts and legacies are complex and care around drafting is essential.

Reducing IHT

Making charitable gifts reduces the estate’s IHT liability. Inheritance tax is charged at 40% of the value of the estate that exceeds the ￡325,000 nil rate band, subject to available exemptions and reliefs.

The charitable exemption means no IHT is payable on any charitable legacies to UK charities (and political parties). Where the testator leaves at least one tenth of their net estate to charity, any IHT payable is charged at the reduced rate of 36%.

Drafting caution

Practitioners have the opportunity to highlight to clients the critical impact charitable legacies have on the future funding and work of charities. Many testators may not have previously considered the option of leaving a gift to charity.

If a client is intending to leave a charitable legacy, practitioners are reminded of the need for caution when identifying and naming individual charities in the will. In Dryden v Young [2024] EWHC 1095 Ch, the court had to rule – no doubt at significant expense to the estate (net value ￡1.48m) – on several ambiguities around the naming of several charities.

Under the will, drafted by a solicitor, the residuary estate was left to 15 charities in equal shares – seven of which were inadequately indemnified. In addition, a clause in the will prevented any of the charities from benefiting if it had changed its name or merged prior to distribution. The judge was required to construe the will by determining T’s intentions at the time the will was made. He went on to deal in turn with each of the charities ambiguously identified in the will, declaring each gift was valid and clarifying the actual charity who would benefit under the terms.

For example, The Animal Defence Society ceased to exist in 1971 and was succeeded by the Animal Defence Trust; and ‘The Heavy Horses Preservation Society’ did not exist but it was considered a valid gift to a similar charity called The Shire Horse Society.

The judge also concluded that the clause concerning name changes and mergers was prospective and applied only to changes to charities following the execution of the will. In fact, no changes had occurred after the will was made.