Post Death Will Variations – Giving 10% to a charity

July 13, 2023

Estates that give 10% of their net value to charity may qualify for a reduction in the rate at which the estate is charged to Inheritance Tax (IHT).

Normally, after any exemptions are taken into account, an estate is taxed at 40%. Section 142 of the Inheritance Tax Act 1984 allows for post death variations of a Will to give 10% of the net estate to charity and in turn qualify for a reduced rate of IHT at 36%.

How can this be achieved?

A beneficiary or multiple beneficiaries can vary some of their share of the estate away and make a gift to charity by a Deed of Variation. A Deed must be signed by all parties that the variation will affect. Sometimes beneficiaries may not agree to varying the Will because it is likely to reduce the amount of inheritance that they receive. Therefore, it may be the case that only one beneficiary varies their share if they feel strongly that they would like for a charity to benefit from the estate.

Who signs the Deed?

As stated before, all of the beneficiaries who are giving up some of their share should sign the Deed. It is also recommended that the charity signs the Deed if they are going to be liable for some of the Inheritance Tax. This depends on how the Deed is worded and it is recommended that you consult a Solicitor to draft a Deed.

Can an attorney for Property and Financial Affairs sign a Deed of Variation on behalf of a beneficiary that has lost capacity?

The variation is viewed as a gift by the incapacitated beneficiary. An attorney has limited powers to make gifts on behalf of the incapacitated beneficiary. In order to do this, an application must be made to receive the Court of Protection’s permission to do so. This can be time consuming and costly. Therefore, it may be sensible to leave out the incapacitated beneficiary from the Deed, depending on the circumstances of the estate.

Example of an estate benefitting from varying 10% to charity

Bill dies with an estate of £1 million after paying any debts and funeral expenses. He leaves this between his two children Joe and Sally equally.

Every individual is entitled to gift up to £325,000 in their lifetime or upon death without incurring a charge or potential charge to IHT. This proportion of the estate, known as the “nil rate band”, is currently taxed at 0%.

An additional “residence nil rate band” was introduced from 6 April 2017. Broadly, this applies where a deceased individual owns a residential property at their death which is inherited by “lineal descendants” i.e. children or grandchildren.  The new allowance is £175,000 per individual. 

This means that Bills estate can pass up to £500,000 IHT free. The remaining £500,000 will be taxed at 40%.

Below is an illustration of how the figures change when you vary 10% to charity. Gifts made to a relevant charity are also IHT exempt.

Summary of figures

If you have any further questions about Probate matters or need to instruct a Solicitor, call our Solihull office on  0121 705 7571, or our Dorridge office on  01564 779393.

Sophia Kenna
Trainee Solicitor – Wills and Probate Department

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