Charitable giving in your Will

Many people are aware that the estates of those individuals that currently die with net assets over £325,000 can suffer an inheritance tax charge of 40 per cent on the excess.

However, fewer people are aware of what can be done to mitigate this tax, during lifetime and beyond.

As a starting point, the rate of inheritance tax is not always 40 per cent. If sufficient charitable gifts are made by the deceased, the rate of inheritance tax can be 36 per cent.

This rate reduction can mean it is financially (and, of course, morally) beneficial for the charitable gifts to be increased, in order to secure the reduced rate of tax.

At least 10 per cent of the deceased’s estate must be left to charity for the estate to qualify for the reduced rate.

For example, consider the case of an unmarried, elderly lady with assets of £1 million and currently, specific charitable gifts in her Will of £70,000.

The very basic calculation of her estate’s inheritance tax liability would be:

Value of estate1,000,0001.
Less charitable legacies70,0002.
Less nil rate band325,000
Inheritance tax at 40% =242,0003.
Cash for beneficiaries:688,000(1 less 2 less 3)

Now consider if this lady amended her Will to include £100,000 of specific charitable gifts:

Value of estate1,000,0001.
Less charitable legacies100,0002.
Less nil rate band325,000
Inheritance tax at 36% =207,0003.
Cash for beneficiaries:693,000(1 less 2 less 3)

By giving £30,000 more to charity, the beneficiaries will receive £5,000 more inheritance, a win-win in most people’s book.

A stage further…..

In the example above, the deceased amended her Will to increase her charitable donations, but what if she died before having chance to do so?

In this case, provided someone (the beneficiaries’ advisor, executor(s), estate administrator, tax advisor or solicitor, etc) is on the ball and notices the opportunity, the amendment to the charitable gifts could be made by Deed of Variation, up to two years after the death.

If you would like help planning your estate in a tax efficient manner, please contact our experienced tax team.

Posted in News, Newswire.