Most guides mention the 36% rate in a single line, the way a footnote mentions a rounding convention. That undersells it badly, because the reduced rate is not a moral gesture with a small tax rebate attached. It is a threshold, it has a cliff on one side of it, and estates fall off that cliff for want of a few thousand pounds.
The rule
Where at least 10% of the baseline amount goes to charity, the inheritance tax rate on that part of the estate drops from 40% to 36%.
HMRC's condition is stated plainly: the donated amount must be at least 10% of the baseline amount. Everything interesting is in what the baseline amount turns out to be.
The baseline amount, and why it is simpler than it looks
HMRC sets out three steps for a single-component estate:
| Step | Operation |
|---|---|
| 1 | Take the estate value, deduct the charitable gift — this is the chargeable transfer |
| 2 | Deduct the nil-rate band |
| 3 | Add the charitable gift back |
Work through their own worked example, an estate of £750,000 leaving £50,000 to charity:
- £750,000 − £50,000 = £700,000 (chargeable transfer)
- £700,000 − £325,000 = £375,000
- £375,000 + £50,000 = £425,000 (baseline amount)
10% of £425,000 is £42,500. The £50,000 gift clears it, so the estate pays £135,000 instead of £150,000.
Now notice what happened. The gift was subtracted at step 1 and added back at step 3. It cancels.
On a £750,000 estate with a £325,000 band, the target is 10% of £425,000, or £42,500. That number is fixed regardless of what you end up leaving.
The cliff edge
This is the part worth the article. The reduced rate is all or nothing — there is no taper, no partial credit for giving 9%.
Take that same £750,000 estate and run three versions:
| Charitable gift | Rate | Tax | Beneficiaries receive |
|---|---|---|---|
| Nothing | 40% | £170,000 | £580,000 |
| £42,499 | 40% | £153,000 | £554,501 |
| £42,500 | 36% | £137,700 | £569,800 |
Read the bottom two rows again. One extra pound to charity moves the family from £554,501 to £569,800 — they gain £15,299.
The dead zone
Follow that logic backwards and something useful falls out.
There is a band of charitable gifts that leaves your beneficiaries worse off than the full 10% would. On a £750,000 estate, that band runs from roughly £17,000 to £42,500.
If your intended gift lands anywhere in it, increasing it to £42,500 leaves:
- the charity with more money, and
- your beneficiaries with more money.
Nobody loses. The Treasury takes the difference. Any planned gift inside that range is simply worse than the alternative for every party you care about, which is a rare thing to be able to say about tax.
Below about £17,000 the arithmetic reverses and a small gift genuinely does cost the family — it just costs them far less than the headline figure, because the estate would have paid 40% on most of it anyway.
Wording the will so it still works
The threshold is a percentage of a number nobody knows until you die. Estates change; a fixed cash legacy that clears 10% today may not in fifteen years. Lifetime gifts in the seven years before death feed into the same calculation, so the seven-year rule matters here too.
The standard answer is to draft the gift as a share defined to meet the test rather than a fixed sum — HMRC's manual deals specifically with charitable legacies worded to meet the 10% test. That way the gift flexes with the estate and the reduced rate survives a change in asset values.
This is genuinely a drafting question rather than a DIY one, and it is where a solicitor earns their fee.
When there is more than one component
Larger or more complicated estates can be divided into more than one component — broadly, property passing under the will, jointly owned property passing by survivorship, and settled property. The 10% test is applied to each component separately.
That can mean an estate passes on one component and fails on another. Where it helps, you can elect to merge components and apply the test as though there were a single one.
If your estate includes a jointly owned property or a trust, assume this applies to you and get it checked. The merger election is exactly the sort of thing that is obvious to a practitioner and invisible to everyone else.
If someone has already died
The threshold can be met retrospectively. A deed of variation made within two years of the death can introduce or increase a charitable gift, and section 142 then treats it for inheritance tax as though the deceased had made it.
So an estate that came in at 7% can be brought to 10% after the fact, with the beneficiaries agreeing to redirect part of what they would have received — often at very little net cost to themselves, for exactly the cliff-edge reason above.
What to actually check
- Work out the baseline first. Estate value minus the nil-rate band. Then 10% of that is your target.
- Is any existing charitable gift inside the dead zone? If it is between roughly 4% and 10% of the baseline, rounding it up costs your family nothing and may gain them a great deal.
- Is the gift a fixed sum? If so, it will drift out of alignment as the estate changes. Consider a formula-based share instead.
- Does the estate have joint property or a trust? Then it may have multiple components, each tested separately.
- Has someone already died? Two years, and a deed of variation can still fix it.
The arithmetic above is the rule working normally. What it does not carry is your estate: the reduced rate has to be reconciled with the residence nil-rate band, with grossing up where a gift is free of tax, and with any lifetime transfers still inside the cumulation. A charitable legacy is drafted once and read decades later, which is reason enough to have a solicitor or chartered tax adviser write the clause.
Sources
- HMRC IHTM45002 — Reduced rate: charitable giving condition or 10% test (opens in a new tab)
- HMRC IHTM45010 — Calculating the baseline amount: single estate component (opens in a new tab)
- HMRC IHTM45008 — Charitable legacy worded to meet the 10% test (opens in a new tab)
- HMRC IHTM45035 — Merger of components: aggregate estate contains two components (opens in a new tab)
- HMRC IHTM45000 — Reduced rate for charitable gifts: contents (opens in a new tab)
- GOV.UK — How Inheritance Tax works: thresholds, rules and allowances (opens in a new tab)
This article is general information for a United Kingdom audience and describes the inheritance tax rules of England and Wales. It is not financial, tax or legal advice. The worked figures use a £325,000 nil-rate band and a single estate component; your own position may differ. Take advice from a solicitor or a chartered tax adviser before relying on any of this. Last reviewed 23 September 2026.
