Households face IHT hit as Labour closes loophole

By the Editorial Team · Wednesday, September 16, 2026

The Labour government has introduced new rules closing a loophole that previously exempted gifts left via charitable trusts from inheritance tax, applying a 40% tax unless trustees transfer assets to qualifying charities within two years of death. This shift, effective for deaths on or after April 6, 2026, could impact many wills and requires donors and trustees to revise estate plans to avoid unexpected tax bills.

Families may face unexpected inheritance tax liabilities on gifts left via charitable trusts following recent changes introduced by the Labour government. The revisions, announced in the autumn Budget and implemented earlier this year, close a long-standing loophole that previously allowed such gifts to qualify for full tax exemption.

Historically, gifts transferred to trustees for charitable purposes were treated as entirely tax-free by HM Revenue & Customs (HMRC), provided trustees received a separate “letter of wishes” outlining the specific charities to receive the funds. This arrangement enabled donors to retain flexibility over which charitable organizations benefited after their passing, allowing donations to support causes and charities that may not have existed when the trust was initially established.

Under the new rules, which take effect for deaths occurring on or after April 6, 2026, gifts left to charitable trusts instead of directly to named UK charities will be subject to inheritance tax at the full rate of 40 percent unless trustees execute a deed of appointment within two years of death. This legal document must formally transfer the assets to qualifying charities to secure tax relief. The regulations for lifetime transfers have already been in force since November 26, 2025.

Tax professionals have raised concerns that the changes could adversely affect many ordinary domestic wills. Emma Chamberlain, a representative from the Chartered Institute of Taxation, criticized the move, noting that if the government’s aim was to prevent abuse linked to foreign charitable trusts beyond effective monitoring, it should have targeted those specifically. Instead, she contended, the new rules inadvertently penalize standard charitable giving arrangements, potentially redirecting funds intended for charity to the Exchequer.

Estimates on the number of individuals impacted vary. Labour has suggested fewer than 50 donors might need to alter their charitable provisions, while legal experts from the firm Mishcon de Reya believe the figure could be considerably higher.

The Treasury has been contacted for comment but has not issued a response. The latest changes represent a significant shift in inheritance tax policy affecting charitable giving structures and underscore the need for trustees and donors to review their estate plans ahead of the upcoming deadlines.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.