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Is your charitable legacy still fit for purpose?
Many people include charitable gifts in their Wills to support causes that matter to them. However, recent changes to the inheritance tax (IHT) charity exemption mean that some gifts in Wills may no longer achieve the intended tax treatment.
The Finance Act 2026 narrowed the scope of the IHT charity exemption with effect from 6 April 2026. Whilst outright gifts to qualifying UK charities continue to benefit from 100% IHT relief, gifts made to executors/trustees to be applied for “general charitable purposes” no longer qualify.
In the light of this, individuals may wish to consider a flexible vehicle, such as a donor advised fund (DAF), to help future-proof their charitable giving.
What is a donor-advised fund?
A DAF offers a middle ground between making direct gifts to individual charities and establishing a separate charitable structure.
A donor opens an account with a DAF provider, which is itself a registered charity and therefore the IHT charity exemption applies to gifts to it, and contributes funds either during their lifetime or on death. The provider then administers the fund and is responsible for its ongoing governance and reporting.
Importantly, the donor can provide recommendations as to how the fund should be invested and which charitable causes should benefit over time. However, ultimate control rests with the DAF provider in its capacity as charity trustee.
The concept originated in the United States, where DAFs have been widely used for many years. The UK market has grown significantly in recent years, with a range of providers now available. Some providers offer structures that can facilitate both UK and US charitable giving, which may be particularly attractive for internationally mobile families or individuals with cross-border tax exposure.
Why consider a DAF in your Will?
You may know that you want to support charitable causes without yet knowing which organisations should benefit in the future. Rather than leaving fixed legacies to named charities, your Will could direct funds to a DAF. Those whom you nominate may then help to continue your philanthropic vision by recommending to the DAF provider grants to charities that reflect your wishes and the needs existing at the time.
A flexible and enduring legacy
Many DAF providers allow donors to create a named fund, establish investment strategies and provide detailed guidance regarding their charitable priorities. Subject to the provider’s terms and policies, the funds may remain invested after the donor’s death and grants may be made over many years, creating an enduring charitable legacy rather than a one-off gift, if desired.
DAFs can also offer families an opportunity to involve future generations in philanthropy without taking on the administration associated with running a separate charitable structure. This enables the family to focus on charitable impact rather than administration.
Is a DAF right for you?
If you are reviewing your Will following the recent IHT changes, it may be worth considering whether a DAF would provide a flexible and future-proofed structure for your charitable giving. A DAF will not be suitable in every case, and providers differ in their fees, investment options, grant-making policies and arrangements for involving family members.
If your Will contains charitable gifts, particularly gifts for general charitable purposes, now is an appropriate time to review those provisions. Taking advice ensures that your charitable objectives are met in a tax-efficient way.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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