How to donate to charity in your Will and benefit your family
22nd October, 2015
In 2012 the Chancellor George Osborne introduced a reduced rate of inheritance tax as part of the Government's desire to encourage the general public to donate to charity.
Although when originally announced, the Chancellor indicated that the intention was to benefit the charitable sector rather than individuals who might inherit the estate of someone who dies, the resulting legislation means that it is possible to benefit those charities which you intend to benefit from a share of your estate when you die, in a way which does not detract from what you intend to leave to your loved ones.
The basic premise is that if you leave at least 10% of your taxable estate to charity by Will, the part of your estate which would otherwise suffer inheritance tax at 40% will instead be taxed at the rate of 36%.
If you own assets jointly with someone who is not your spouse and who might therefore suffer inheritance tax on your share of the property which they might inherit by survivorship when you die, it might also be possible to reduce the rate of tax that they will pay on your share of the property from 40% to 36% too.
This is done by your executors and the other person electing to merge the values of property (purely for computational purposes) in order to calculate whether the 10% minimum of the charity gifting is achieved.
In addition, if you are a beneficiary of a settlement and the assets of it will pass to your family on your death, it may be possible for your executors and the trustees of the settlement to also elect to merge values in order to compute whether the 10% level is reached so that the settled assets may also benefit from the reduced rate of tax.
Of course it may be that you have already provided in your Will to benefit charities by leaving them a generous legacy and if that is the case then it is worth reviewing whether what you are proposing to leave to charity might be increased in order to benefit both the charities that you support and at the same time benefit the rest of your family who might otherwise receive less due to the rate of inheritance tax that will be paid.
The following table shows how an increase in the amount of charitable legacy giving in a Will may be of help all around.
The following example is based on the estate of an individual with a single nil rate band of £325,000 leaving an estate of £500,000 to their children after providing for a legacy of a proportion of the estate to charity.
[table id=7 /]
If you have already provided for legacies to charity in your Will, or are thinking of doing so, it would be sensible to review the terms of your Will and take advice on whether an adjustment to the level of charitable gifting will be beneficial to your beneficiaries as a whole.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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