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Charitable Giving in Your Will
23 July, 2024 4 minutes reading time
Making a Will isn’t just about distributing assets to family; it’s an opportunity to support causes you care about and leave a meaningful legacy. By including a charitable gift in your Will, you can make a lasting impact on the world while potentially reducing inheritance tax for your loved ones.
Making a Difference: Key Considerations
1. Provide for Your Dependents. Before considering charitable gifts, ensure your family and any financial dependents are well-provided for. Under the Inheritance (Provision for Family and Dependants) Act 1975, individuals who believe they haven’t been adequately provided for in your Will can claim against your estate. Open communication with your family about your charitable intentions can help prevent future disputes and ensure your wishes are respected.
2. Understand the Inheritance Tax Implications (IHT). Charitable bequests are exempt from IHT, potentially reducing the tax on your estate. For example, if you leave 10% or more of your net estate to charity, the remaining taxable portion may qualify for a reduced IHT rate of 36%. However, consulting with legal and financial professionals is essential to understand how charitable giving can optimise your tax situation.
3. Communicate Openly with Your Family. Openly discuss your charitable wishes with your family well in advance. Explain your reasons for supporting specific causes and ensure they understand your intentions. This transparent communication can prevent misunderstandings and ensure your family supports your decision.
4. Choose How to Give. There are two ways to leave money to a charity in your Will. You can specify a named charity or charities that will benefit or let the executors of your Will decide. Your gift can be specified as:
- Donation: A one-time gift of a specific amount or asset to a charity.
- Legacy: A gift left in your Will, typically a percentage of your estate or a specific sum.
- Charitable Trust: A more complex option that offers greater control over how your gift is used and can provide ongoing support for your chosen cause.
James’ Charitable Gift
In this example, James is a bachelor who passes away with assets worth £830,000, all in his sole name. In his Will, he leaves £50,000 to a registered charity and the remaining balance to his nephew, Simon, and niece, Laura. James’ debts (funeral expenses) amount to £5,000. He made no gifts during her lifetime, so his full nil-rate band (NRB) of £325,000 is available.
Calculating the Taxable Estate With Charitable Gift
Description | Value |
---|---|
Net Estate / Assets | £830,000 |
Nil-Rate Band | -£325,000 |
Debts | -£5,000 |
Charitable Gift | -£50,000 |
Taxable Amount | £450,000 |
IHT (36%) | £162,000 |
Simon & Laura Inherit | £613,000 |
Calculating the Taxable Estate Without Charitable Gift
Description | Value |
---|---|
Net Estate / Assets | £830,000 |
Nil-Rate Band | -£325,000 |
Debts | -£5,000 |
Taxable Amount | £500,000 |
IHT (40%) | £200,000 |
Simon & Laura Inherit | £625,000 |
While Simon and Laura inherited less (£12k), the charity benefited hugely by receiving a gift of £50k. Inheritance Tax has been reduced by £38k.
Important Considerations
Reduced IHT Rate: While James’s charitable gift exceeded the 10% threshold required for the reduced IHT rate, the nil-rate band already covered a portion of his estate, making the reduced rate inapplicable. The 36% reduced rate would apply in the following example:
Example: Let’s say your net estate (after deductions and reliefs) is £500,000.
- Nil-rate band: £325,000
- Baseline amount: £500,000 – £325,000 = £175,000
- 10% threshold: £175,000 * 10% = £17,500
To qualify for the reduced IHT rate, you must leave at least £17,500 to charity. The reduced rate applies to the portion of the estate exceeding the nil-rate band. If the estate’s value is below the nil-rate band, there will be no IHT to pay, even without any charitable gifts. The reduced rate applies to deaths on or after 6 April 2012.
Larger Estates: Couples with larger estates may lose the Residence Nil Rate Band (RNRB) if their estate exceeds £2 million. Including a charitable gift could help reduce the estate value below this threshold, preserving the RNRB and reducing IHT.
Deed of Variation: If James had left a smaller gift, Simon and Laura could have used a Deed of Variation to increase it within two years of James’s death, benefiting from the reduced IHT rate.
Our Advice
Donating to or leaving a legacy for a charity is a rewarding way to make a difference and support causes you care about. However, these are complex legal processes and should be discussed with qualified professionals. They will explain your options thoroughly and structure your Will so the charity and family benefit the most.
Please contact us if you need advice on leaving a gift to charity, making or revising your Will, or any other related matter. Our specialist team is 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.