In a roundtable discussion we hosted last week, professional advisers and legacy giving experts came together to explore the potential implications of the upcoming changes to Inheritance Tax (IHT) on legacy giving.  

The Autumn Budget announced significant changes to the IHT framework that will impact charities and donors alike. While Agricultural Property Relief (APR) may have hit the headlines so prominently, the decision to bring pensions into the scope of IHT, coupled with a freeze on IHT thresholds until 2030 will have implications on a large number of taxpayers and could change the way people approach their estate planning. 

To explore the issue and help charities anticipate the changes, we held a roundtable event where expert panellists shared their insights, while acknowledging that there is still a great deal of uncertainty about what lies ahead. 

Led by Anaish Yilma-Parmar, Chair of Remember A Charity and Head of Legacies at the British Red Cross, the panel included Alex McDowell, Director of Fundraising at the Duke of Edinburgh’s Award, Ian Bond, representative of The Law Society’s Wills & Equity Committee, Tanya Watson, Senior Director of Private Client Services at Alvarez & Marsal and Rachel Steeden, Head of Legal at Stewardship. 

The role of tax incentives in legacy giving 

During the session, panellists cited the importance of charitable legacies and the role of tax incentives in growing this form of giving. In the UK, any charitable donations in Wills are tax-free and estates gifting 10% or more qualify for a reduced IHT rate of 36%. While a minority of estates pay IHT, Alex McDowell referenced HMRC data showing that over £2 billion a year is donated from estates using the charitable incentive and around half of that (little under £1 billion) comes from those paying the reduced IHT rate of 36%.  

Panellists agreed that the motivation for giving is typically altruistic, rather than being driven by the fiscal benefits, but that charitable incentives do have a key role to play in bolstering the volume and value of legacy gifts. Tax incentives make it all the more relevant for solicitors and professional Will-writers to raise the topic with clients and this is crucial when it comes to normalising legacy giving (read more in this blog). 

Understanding the changes 

Delving into the IHT rules, Ian Bond discussed the current framework, what’s changing in April 2027 and why this is such a fundamental shift. The panel discussed how pension pots had been used as a tax-effective savings vehicle for many years, meaning that the number of people facing an IHT bill will increase considerably and many more will need to change or review existing estate plans. Indeed, professional advisers in the room commented on the increase in questions about IHT from their client base. 

It was also highlighted that testamentary freedom is a key pillar for Wills (with some variance in different parts of the UK), but that the rules for how pensions can be allocated are much more specific. Pension plans often sit outside of a Will and are subject to specific rules around how they can be passed on after death. So, for those who wish to donate to good causes from their estate and make use of their pension pot to do so, Rachel Steeden highlighted that it’s not easy – particularly for those with dependants (find out more about charity lump sum death benefits here). 

What could all this mean for legacy giving? 

While it’s uncertain what process changes will be introduced to draw together the world of pensions and Wills, the group discussed several potential ways this might impact legacy giving, covering both the opportunities and risks. 

The threat of an increased tax bill could certainly run the risk of people feeling more apprehensive about their wealth and less able to support good causes. Tanya Watson highlighted that uncertainty tends to make it more difficult for people to plan ahead and make decisions. But panellists agreed that it also creates an opportunity for legacy giving to grow, with more people looking for ways to reduce their tax bill and turning to estate or tax planning professionals to support them with their decision-making. This may also lead to an increase in the use of discretionary Wills and expressions of wishes, alongside Deeds of Variations.

A common theme was that professional advisers and charities can add great value in supporting their clients and donors respectively, not just when it comes to the tax savings, but when contributing to a values-led approach for passing on wealth.  

What next? 

In the lead up to the pension changes in April 2027, there is a considerable job to be done in making the public aware of the changes coming in for IHT and ensuring people understand they may need to make or review their estate plans. 

From Remember A Charity’s perspective, we recognise there is a need and opportunity for us to work collectively with our members and partners in the legal and financial sector to ensure the law makes leaving a charitable gift through your pension more accessible and tax-effective. Doing so would not only open up opportunities to grow legacy giving, but improve and streamline the estate planning process for supporters. We’ll be sharing future updates in the coming weeks.