Inheritance move thousands of wealthy families are making to cut tax rate by 4% | Personal Finance | Finance

Wealthy parents in the UK are increasingly donating more to charity to reduce their inheritance tax (IHT) bills and avoid passing on too much money to their children.

A new study of high-net-worth parents with average assets over £3million found that 75% believe leaving a large inheritance can be “a curse on their children’s lives”. Many are worried that if they leave too much money, it will be spent irresponsibly or undermine their children’s ambitions. Over three in five (61%) expressed concerns that their children might misuse the inheritance, while 57% said their adult children already have enough money and that there are more important uses for their wealth.

In response, the study by wealth management firm Rathbones showed that more than half (53%) of these parents have increased their charitable giving over the past two years, motivated by rising income and a desire to create positive social impact.

Charitable donations offer a practical way to ease the growing inheritance tax burden. With nil-rate bands frozen and pensions set to be included in estates from April 2027, many families face rising tax bills.

However, gifts to charity are exempt from IHT, and donating at least 10% of an estate to charity reduces the IHT rate from 40% to 36%. Additionally, donations made during one’s lifetime benefit from Gift Aid, which boosts the donation’s value by 25%, with higher-rate taxpayers eligible to reclaim further tax relief.

Gemma Gooch, head of charities distribution at Rathbones, said: “Our analysis shows many wealthy parents, already concerned about inheritance tax, fear the impact of too big an inheritance on their children’s aspirations and drive. It is, therefore, no surprise that more are increasingly turning their attention to charitable giving.

“Incorporating charitable giving into financial planning allows parents to create a meaningful legacy, support causes close to their heart, and potentially pass on a greater share of their estate to their chosen beneficiaries, rather than the taxman.”

Olly Cheng, financial planning director, added: “We’re seeing more clients aiming to strike a balance between reducing their IHT burden, supporting good causes, and leaving an inheritance that doesn’t dampen their children’s ambition.”

For those concerned about the latter, Mr Cheng noted that contributing up to £2,880 a year into a child’s pension, which is topped up to £3,600 with tax relief, could be “a good option”. The funds remain locked until retirement age, allowing decades of tax-free growth.

Mr Cheng continued: “For those wanting more control over how and when wealth is passed on, a trust could be worth considering. Trusts can stagger access to funds, reducing the risks of sudden wealth undermining ambition. While more about control than tax efficiency, they remain a valuable option, especially for blended families. Professional advice is essential to find the right solution.”