My client died and left a gift of 10% of his Estate to his family’s charity, in order to benefit from the 36% rate on the taxable element of the Estate.
The Charitable Trust X was properly established by Trust deed in 2024 and he died in April 2026. However X has not been registered with the Charity commission and has had no activity to date (apart from some donations from a company owned by my clients company,which was meant to be sent on behalf of the new Charity and receipts were issued accordingly.
The reason for this is that the main reason for X was to make donations after his death.
Is a Charitable Trust (X) which is not a Registered Charity at the time of death eligible for the payment of 10% of the Will in order to qualify for the 36%. And if not, what can we do as the Will only leaves it to X
The key point is the date of death, as the IHT charitable exemption rules changed from 6 April 2026.
1. If the deceased died before 6 April 2026, IHTA 1984 s23 provided relief where property was either given to a charity or held on trust for charitable purposes only. For these purposes, a charitable purpose is one falling within the descriptions in s3(1) Charities Act 2011 and which is for the public benefit. Therefore, provided X's trust deed restricted the trustees to applying the trust property exclusively for such charitable purposes, the fact that X was not registered with the Charity Commission at the date of death would not necessarily prevent the legacy qualifying.
2. If the deceased died on or after 6 April 2026, Finance Act 2026 removed the alternative exemption for property simply “held on trust for charitable purposes only”. X would therefore need to qualify as a charity in its own right under Finance Act 2010 Schedule 6, which includes satisfying the charitable purpose, jurisdiction, registration and management conditions. The absence of Charity Commission registration is not automatically fatal, as the registration condition is essentially that X must have complied with any requirement to register. For an England and Wales charity, registration is generally not compulsory where gross income does not exceed £5,000, subject to the relevant statutory exceptions.
If X ultimately cannot qualify as a charity, the position becomes more difficult for a post-6 April 2026 death. I would then recommend taking specialist legal advice before any distribution is made to consider whether the Will disposition can be varied or otherwise dealt with.
Separately, even if the charitable gift qualifies for exemption, the 36% IHT rate only applies where the charitable gift is at least 10% of the statutory “baseline amount”. That calculation should therefore also be checked rather than relying solely on the Will referring to “10% of the Estate”.
I have a client with EIS approval who have issued shares –
I noted that the first share issue was for Ordinary shares with no voting rights - an EIS claim was submitted for this investor. The rest of the subsequent issues ie the majority of raise were for ordinary shares with voting rights. I have flagged this, and client is to change the original share class to have voting rights so all are in line.
Having read this from HMRC -
The Upper Tribunal has confirmed that it is not possible to ignore even a small or insignificant preferential right, so investors must be careful whenever they look to alter share class rights or create new classes of shares where EIS is concerned
Would the fact there were shares with and without voting rights in existence cause a potential issue with EIS?
Would changing , to bring in line as above compound that?
If the latter share issues had voting rights then they had preferential rights over the original shares that had no voting rights. However, the only preferential rights within s173 ITA 2007 that are important are those over dividends and assets on a winding up. See VCM12020. Voting rights are not mentioned in s173.
It is unclear which Upper Tribunal decision you are referring to but it may be Flix Innovations Limited v HMRC (2016) UKUT 0301 in which it was held that the shares carried a preferential rights to assets on a winding up which could not be ignored on de-minimis grounds.. In Foojit Limited v HMRC (2021) UKUT 14 (TCC) it was held that one class of the company’s shares had an excluded preferential right to dividends.
Follow up Question
When we then amend the original share to have voting rights as well - this would not be an issue for EIS as not affecting dividends or assets on winding up - is this correct in summary..
Follow up Answer
There would be no effect for EIS relief as regards preferential rights as voting rights are not mentioned in s173 ITA 2007. Altering the rights over shares changes their value. Giving non-voting shares voting rights will increase their value. How much the value increase is will determine whether there is value received by the investor under s213 ITA 2007 possibly requiring a clawback of EIS relief. I would assume that the change in value would not cause any of the other EIS qualifying conditions to be failed but that should be checked."
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