Inheritance tax changes and reform of the Wills Act: What will they mean for charities?

Eleanor Evans TEP, Partner and Head of Trusts and Estates Administration, summarises recent inheritance tax changes and proposals for reform of wills law, and how these will impact on charitable legacies.

Professionals in the charity legacy sector are preparing for significant legislative developments in two key areas. First, the Autumn 2024 Budget has introduced major changes to inheritance tax (IHT), including the treatment of pensions. Second, the Law Commission’s May 2025 report has set out proposals for modernising the Wills Act 1837. Both of these changes will shape the environment for legacy fundraising, estate planning, and the administration of charitable gifts. Charities, and those who advise them, will need to understand how these reforms might affect both supporters and legacy income.

Inheritance tax: Key changes ahead

A central feature of the recent inheritance tax reform is the change to the treatment of pensions. From April 2027, any unused pension funds and pension death benefits will be included within the deceased’s taxable estate, unless the beneficiary is exempt (such as a spouse or a charity). These funds will be subject to inheritance tax at the standard rate of 40%, after deduction of the nil-rate band (the tax-free allowance) and any available reliefs. The policy reason for this decision is to remove the availability of pensions as a tax planning tool for the wealthy, when their intended use is to fund retirement.

The nil-rate band for inheritance tax remains at £325,000 and will be frozen at this level until at least 2030. Nil-rate bands can be transferred between spouses, and there is an additional residence nil-rate band available where specific criteria are met. Under the new rules, the nil-rate band allowance will need to be apportioned between the value of the free estate (property, money and investments owned by the deceased) and the value of any pension funds payable on death, based on their respective values.

From April 2026, changes will also affect Agricultural Property Relief (APR) and Business Property Relief (BPR). Where the value of qualifying assets exceeds £1 million, inheritance tax will be charged at 20% on the excess. This is a marked shift from the current system, where many such assets can be passed on free of inheritance tax .

As a result of these changes, the proportion of estates liable to inheritance tax will increase. According to the Office for Budget Responsibility, more than 9% of estates are expected to be subject to inheritance tax by 2030, up from 5.25% in 2023/24. inheritance tax receipts are projected to rise substantially over the next few years, with almost £14 billion forecast for 2029/30.

The impact on charitable legacies

For charities, the most immediate reassurance is that gifts to charity will remain exempt from inheritance tax . The reduced inheritance tax rate of 36% for estates leaving at least 10% of the net estate to charity will also continue to apply. As more families are brought into the inheritance tax net, there is likely to be a surge in individuals seeking estate planning advice.

Solicitors and wealth advisers already play a crucial role in encouraging charitable legacies. The 2024 Remember A Charity Will Writing Survey found that nine out of ten solicitors raise the inheritance tax benefits of charitable gifts with clients. As the pool of estates affected by inheritance tax expands, it is likely that more individuals will be encouraged to consider gifts to charity as part of their planning.

However, the impact may not be entirely positive. Some people, concerned by the increased inheritance tax burden on their estate meaning they have less to pass on to the next generation, may feel less able to make legacy gifts.

We are also likely to see changes in estate planning habits. Some people may choose to make more lifetime gifts or use trusts, rather than relying on a will to pass on assets after death. Advisers may need to revisit existing plans with clients who previously relied on the inheritance tax -free treatment of pensions. Charities can respond to these changes by ensuring supporters are kept informed, reviewing their legacy messaging, and encouraging regular will reviews.

On the legacy administration side, the reforms are likely to increase both the volume and complexity of estates requiring inheritance tax reporting. Legacy managers should expect to encounter more estates with inheritance tax liabilities. Calculating the apportionment of the nil-rate band and inheritance tax liabilities, and liaising between executors, pension providers, and charities will become more involved. All of this is likely to mean longer administration timescales and potentially slower distributions of legacy gifts.

The sector can prepare by updating guidance for supporters, keeping teams informed of legislative changes, and developing robust processes for dealing with complex estates.

Reform of the Wills Act: Modernisation and flexibility

The Law Commission’s report on reforming the Wills Act 1837, following a consultation process that commenced in 2017, marks the first significant attempt to modernise will-making in almost two centuries. The goal is to make will-making more accessible and flexible, while also reinforcing legal protections. The proposals are not yet law, and the Government has one year to respond to the report.

Under the proposals, the formal requirements for a valid will (written form, signature, and two witnesses) would remain. However, the courts would be given new powers to “dispense with” strict formalities if it is clear what the testator intended. This means that handwritten notes, digital documents, or even audio recordings could be accepted as valid wills in some circumstances, provided the court is satisfied that they reflect the testator’s settled wishes.

There is also a clear move towards embracing technology. The Commission recommends legal recognition of electronic wills, with the detailed rules to be confirmed in future Statutory Instruments. The intention is to allow people to make valid wills using secure electronic systems, but with robust safeguards against fraud and undue influence.

Other proposals include lowering the minimum age for making a will from 18 to 16, which would allow young people with life-limiting illnesses to make arrangements for their estate. In exceptional circumstances, the family courts could approve will-making by someone even younger.

One of the most significant changes relates to the effect of marriage on a will. The rule that marriage revokes a will would be abolished. This is designed to protect vulnerable individuals from so-called “predatory marriages”, which can currently defeat their previous testamentary intentions.

The proposals also address the issue of undue influence. Courts would be able to infer undue influence from the surrounding circumstances, and the burden of proof (i.e., to prove there was no undue influence) would fall on those seeking to prove the will. The new act would also codify the common law principle that a testator must have knowledge and approval of the contents of the will for it to be valid.

Technical reforms are proposed to make the rectification of wills easier. The court would be able to correct mistakes by the testator or the will drafter where they had misunderstood the effect of the words used when drafting the will, and not just clerical errors. This will make it easier to ensure that the testator’s true intentions are respected, even if a drafting error has occurred.

Further changes would provide greater protection against the ademption (failure) of gifts of property that have been sold during a testator’s lifetime. Currently, there is an exception to the general rule of ademption for properties sold by a Court of Protection Deputy; this will be extended to properties sold by attorneys under Lasting or Enduring Powers of Attorney.

Finally, the Banks v Goodfellow test for mental capacity to make a will is proposed to be replaced with the test for mental capacity within the Mental Capacity Act 2005. The Law Commission’s view is that it is clearer for there to be one capacity test. It is also recommended that the MCA Code of Practice be updated in relation to assessing capacity for wills, to provide additional clarity for practitioners.

Practical implications for charities

Modernisation and greater flexibility should make it easier for individuals to make valid wills, which could in turn lead to an increase in the number of charitable legacies. The introduction of electronic wills may widen access further, especially among younger or more digitally engaged supporters.

There are, however, some practical risks. Greater flexibility in will-making could lead to more frequent will updates, with donors changing their instructions and potentially altering which charities they wish to benefit. Good record-keeping and regular supporter engagement will help to manage this risk.

Disputes over informal documents or audio recordings put forward as wills could also become more common. The Law Commission notes that other countries have managed these risks without a significant increase in litigation, but charities should ensure their legacy teams are equipped to deal with new types of challenge.

Implementation of the new Wills Act (if approved) is unlikely to begin before late 2026, and it may be phased in over time. Charities should monitor developments, review staff training, and keep their legacy messaging clear and accurate as the legislative landscape evolves.

Conclusion

In the years ahead, charities will face both new opportunities and challenges in the legacy sector. Being proactive, well-informed, and adaptable will be vital. Regular communication with supporters, a clear understanding of the changes, and strong stewardship of lay executors will help to protect and grow legacy income.

The Law Commission’s full recommendations can be found online if you require further information.