The Benefits of Leaving Money to Charity

Making a Will is the only way to decide who benefits from you after your death. Naturally, making sure your family is looked after financially is an important consideration. However, there are benefits to leaving money to charity too. It means you’re not only supporting a worthy cause but your gift or legacy can also have positive tax implications.

According to the Charities Aid Foundation, more than £10 billion was donated in the UK in 2018 to charity. Significantly, £2.8 billion of this was donated by people in their Will. And, as the largest single source of funding in the charity sector, many rely on this income stream to survive.

You’re Not Restricted to Giving Money

The vast majority of those (some 80%) who plan to leave a legacy gift, opt for leaving money, according to Saga Legal Services. But remember, it’s also possible to leave property and art.

Gifts of art or treasured objects (which may not mean much to family members) can make a huge difference to a charity. They can sell them to raise much needed funds; or, depending on the nature of the object, it can become part of a public collection, giving pleasure to many for years to come.

Types of Legacies

There are three ways of leaving a gift to charity:

1. A Specific Legacy: a gift of a specific item;
2. A Pecuniary Legacy: a gift of a specified amount of money;
3. A Residuary Legacy: a share in the rest of your assets you have not already given to your family and friends.

The Benefits of Leaving Money to Charity

The word “legacy” does conjure up the idea of great wealth and assets to spare. But, you don’t need to be well off to leave money or assets to a cause that matters to you. Indeed, small amounts can make a big difference. For example, a mere £46 could cover the cost of training a volunteer at the Samaritans.

Legacy gifts account for more than 50% of the British Heart Foundation’s income, a third of Cancer Research UK’s work is funded by gifts and wills and two out of three guide dogs are sponsored through legacy gifts.

Apart from supporting your favourite charity’s work, there are also financial benefits to leaving part of your estate to charity. Charitable donations or legacy gifts in your Will aren’t taxed the same way as an inheritance.

Currently, inheritance tax (IHT) stands at 40%. This applies to the proportion of your estate valued above £325,000 or £650,000 for married couples. But any legacy gift to charity won’t be taxed and therefore doesn’t count towards the taxable value of an estate.

Furthermore, if you leave at least 10 per cent of your net estate above £325,000 (£650,000 for a married couple or civil partners) to charity then you can cut the rate of inheritance tax you pay from 40 per cent to 36 per cent. Also, there’s no capital gains tax on land, property or shares given to charity.

It’s worth remembering that charitable status also applies to museums, historic and cultural institutions, as well as those involved with animal welfare, children and medical research.

Practicalities

It’s best, when making or changing your Will, to seek advice from someone qualified to help. That way you can be assured that the advice you are given is up to date and in line with financial regulations or all appropriate legislation. If you’ve already made your Will, then you can add a ‘codicil’. This will allow you to make changes without rewriting the entire document.

Many charities offer a free will-writing service too, so make sure you check their website for information or links to solicitors who work closely with them.

Letter of Wishes

People who want to leave a gift to charity in their Will should specify the charity in a letter of wishes, which is a separate document. Depending on how your Will is drafted, you can simply update your letter of wishes without the need to make substantive changes to the document.

Example: Estate valued at £350,000

Assuming there is no RNRB and your estate is valued at £350,000 (after any liabilities and debts have been deducted), inheritance tax (IHT) is payable at 40% on the amount above the nil rate band (NRB) of £325,000; ie £25,000 of that.

But, if you left £25,000 to charity, the figure would reduce to £325,000. No inheritance tax would be due.

Example: Estate valued at £500,000

Your estate is valued at £500,000 (again, assuming no RNRB but after any liabilities and debts have been deducted); IHT would be due at 40% on the £175,000 (£500,000 – £325,000 = £175,000). This means, at current rates, you would pay £70,000 IHT.

But, if you left 10% of your estate (£50,000) to charity, the value would reduce to £450,000. IHT would then be due on the £125,000 above NRB, but at a reduced rate of 36%.

This means, at current rates, you would pay £45,000 IHT.

Our Advice

Making sure your family is looked after financially is very important. But helping a charity to continue their work by leaving a legacy to them can be rewarding – for them and your family. And remember, writing a will isn’t as complicated as it looks.

If you need any more information or advice, please contact us. We’re here to help.

Please note that all views, comments or opinions expressed are for information only and do not constitute and should not be interpreted as being comprehensive or as giving legal advice. No one should seek to rely or act upon, or refrain from acting upon, the views, comments or opinions expressed herein without first obtaining specialist, professional or independent advice. While every effort has been made to ensure accuracy, Curtis Parkinson cannot be held liable for any errors, omissions or inaccuracies.

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