Charitable Legacies and Trustee Discretion: A Crucial Change from 6 April 2026

From 6 April 2026, a lesser known but highly significant change will affect how charitable gifts in Wills are treated for Inheritance Tax (IHT). In particular, estates that rely on trustee discretion when deciding whether assets pass to charity could lose valuable tax reliefs.

If your Will includes flexible or discretionary provisions involving charitable beneficiaries, this is something you cannot afford to ignore.

The Current Position (Before 6 April 2026)

Under the existing rules, gifts to UK registered charities are generally:

• Fully exempt from IHT, and
• Can help estates qualify for the reduced 36% IHT rate if at least 10% of the net estate passes to charity.

In many Wills, testators allow trustees some flexibility. For example:

• A discretionary trust where trustees may appoint funds to charity
• A “letter of wishes” expressing a preference for charitable giving
• Powers enabling trustees to redirect assets post death

Historically, in some cases, these arrangements could still achieve favourable tax outcomes if trustees exercised their powers in a way that benefited charity.

What Changes from 6 April 2026?

From 6 April 2026, HMRC is tightening the rules.

• Charitable gifts will only qualify for IHT relief if they are certain at the date of death.

This means:

• If a gift to charity depends on trustee discretion, it may not qualify for the IHT exemption.
• The same uncertainty can prevent the estate from benefiting from the reduced 36% rate.
• Even if trustees later decide to give to charity, the tax position is assessed based on what was guaranteed at death not what happens afterwards.

Why This Matters

This change targets flexibility but flexibility has been a core feature of modern estate planning.

The consequences include:

1. Loss of IHT Exemption

If a charitable gift is not fixed and guaranteed, it may be treated as if it were not made to charity at all for IHT purposes.

2. Missing the 10% Threshold

Discretionary charitable gifts may not count toward the 10% test needed for the reduced IHT rate potentially increasing the tax burden on the entire estate.

3. Increased Uncertainty and Risk

Wills that were previously considered tax efficient may now produce unexpected IHT liabilities.

If you would like to review your existing Will or discuss this matter further, book an appointment with Gemma Lowe or David Hardy on 01926 422101 or leamspa@fieldoverell.com