Are donations in wills becoming a thing of the past?

26 March 2023
HMRC has released its latest UK charity relief statistics. The figures show the value of reported tax reliefs on charitable donations remained broadly in line with both the first year of the pandemic ending April 2021, and the year immediately before the pandemic, April 2019. For the tax year ending April 2022, tax relief for charities and their donors was £5.4bn, less than 1% difference to the previous year.

For gift aid paid at the basic rate, this was down 3% at £1.34bn in the tax year ending April 2022, largely caused by HMRC initiating extra risk assessments on claims in March 2022. 

The number of individuals declaring a donation via self-assessment dropped by 4% in the year to April 2021 compared to the previous year, reflecting a fall of a similar scale in the number of people submitting self-assessment tax returns. The age group that donated the highest average amount per donor was those aged 55 to 64 years old. The total value of donations declared by individuals on their tax returns for 2020/21 dropped by 8% to £3.4bn.

So, what could be causing this decline in gift aid claims and will it continue? Whilst the statistics demonstrate that there has not been any significant change in the overall value of charitable donations, philanthropy by its very nature is sensitive to societal shifts. 

The last few years have been witness to seemingly unprecedented global change and instability – from Covid-19, the presence and influence of technology, and the widespread effects of climate change. These trends and forces have had profound effects on our daily lives, and they are also affecting and influencing the giving landscape. It seems clear from the statistics that the pandemic resulted in a fall in the number of donations declared via self-assessment in the year to April 2021 but despite this year-on-year fall, the proportion of individuals declaring donations via self-assessment remained steady. 

Giving while living is increasingly popular as more donors enjoy seeing results of their generosity during their lifetime. This trend is also driven by philanthropists who want to do more than simply give money, but also deploy their skills, time and connections to make a difference sooner rather than later. 

Families are also seeing philanthropy as an opportunity for parents and children to work alongside each other on initiatives with purpose and impact, providing an opportunity to build a legacy.

So, we expect self-assessment donations to continue upwards again but that could potentially be skewed by the recent Budget changes that will restrict gift aid to UK charities only, ie restricting relief on donations to overseas charities, from April 2024.

For the tax year ending April 2022, inheritance tax (IHT) relief for charitable donations given via donations in individuals' wills were estimated to be £0.8bn, around 4% lower than the previous year. 

If there is to be long-term decline in donations in wills, it could be that legacy giving as a planned donation that designates a part of an individual’s estate to a chosen charity could gradually become a thing of the past, with individuals instead opting for lifetime giving. 

As IHT revenues grow to record levels, it’s a surprise that donations made in wills are declining. This may point to a lack of understanding by taxpayers of the opportunity to save IHT through charitable legacies. Broadly, the rate of IHT can be reduced to 36% from 40% if 10% or more of the estate is left to charity. If there is an area that charities may wish to focus on to generate additional funding, it may be in helping to educate taxpayers on the potential IHT advantages of donations in wills, as well as ensuring that all taxpayers have a valid will in place.