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At the same time, there remains an option to leave 10% of your NET estate to charity, so that you can claim a 36% rate of inheritance tax, rather than 40% on the balance of your estate. People often opt to do this, with the charitable intention and tax saving both incentives.
Technically, a person’s estate for Inheritance Tax is assessed as being everything to which they are beneficially entitled, and this is split into three components:
- Survivorship – those items owned jointly which pass by survivorship
- Settled property – generally assets from a trust where the deceased had a right to income
- The general component – this is the deceased’s free estate, which is really anything owned by them solely or their share when owned jointly as tenants in common
On 23 April 2026, the government confirmed that, from 6 April 2027, the unused pension funds and lump sum death benefits would fall within the general component of a deceased’s estate for the purposes of calculating whether they had left 10% or more of their NET estate to charity and were, therefore, able to benefit from the lower (36%) rate of Inheritance Tax. This has been confirmed in their technical note of 11 May 2026.
Wills have, traditionally, referred to leaving 10% of the general component to charity to enable the estate to claim the 36% inheritance tax rate.
The potential challenge that now arises is that the general component will include the pension. So, in a very simple example, if the general component in an estate previously consisted of just bank accounts, the 10% would be 10% of those accounts. Now, the 10% will be 10% of the total of the bank accounts and the pension, which will be more.
This means the sum (the 10%) that is being left to charity has increased. In addition, that actual amount may only be able to be paid from the bank accounts as the pension may be nominated to specific beneficiaries (which does not include the charities), and those funds cannot be used. As a result, the sums received by charities may be more than the individual intended in their Will and there may be less cash available for distribution to the non-charities.
This is aside from the additional inheritance tax payable now that the pensions are included in a person’s estate after death.
Professional bodies have requested that a separate component is set up for pensions to avoid unfairness and these unintended consequences and we wait to see what happens. In the meantime, consideration should therefore be given to any charitable gifting you have made in your Will.
What you should do now
Anyone who has a large pension pot, and whose Will leaves this type of gift to charity, should be looking at reviewing their Will and estate planning. They need to review whether they want the value of pensions included in charitable gifting. They should also be thinking about pension nominations and how they link, or interact, with their Will.
Should you have any concerns about charitable giving in your Will, or you would like to discuss estate planning further, please contact our expert Private Client solicitors on +44(0)3333 231580 or email us here.
