How gifts in Wills affect IHT

How many of you ever consider making a charitable donation in your Wills?

Research reveals that charitable legacies in Wills is worth about £4bn a year to the charity sector – a huge amount of money!

There are great rewards for clients who choose to include a charitable bequest in their Will. The generous inheritance tax (IHT) reliefs associated with charitable gifts are often central to conversations that I have with our clients, and can have significant impact on how they may choose to structure their estate.

How gifts in Wills affect IHT
Making gifts to qualifying charities in Wills can be an effective way to reduce the amount of IHT payable on the estate on death. Generally, IHT is payable at a rate of 40% on assets over the available nil-rate band (currently £325,000).

Charitable gifts can work to reduce the IHT payable in two ways. First, gifts left to charities on death benefit from an exemption from IHT. This exemption extends to gifts of any asset, including cash, with the gift to charity reducing the value of the net estate chargeable to IHT. Second, since 6 April 2012, a reduced rate of IHT is applied where 10% or more of a deceased’s taxable estate is left to charity. A reduced rate of 36% will be applied to the balance of the estate not passing to charity.

Depending on an individual’s circumstances, the lower rate of IHT can prove attractive to some people and may encourage them to increase the amount given to charity.

It is entirely possible for an individual to utilise a legacy gift to both reduce the amount of the estate that passes to the taxman and make a tax-efficient gift to charity. We always make our clients aware of the options when it comes to charitable giving within a Will, and the associated IHT implications for their estate.

By incorporating these sorts of conversations about charitable gifts as a standard part of the Will-writing process, not only does Prior Knowledge support clients in taking care of everything that is important to them, but it also enables the work of countless good causes to continue for generations to come.

As a matter of course, we always discuss charitable gifts with our clients.

Some months back, the government was considering abolishing IHT altogether and the charity sector were largely fearful of this move as it would have removed a huge incentive for people to make charitable legacies, to reduce their inheritance tax liabilities, which could have seen a very big drop in charitable legacies.

So charitable legacies is a very legitimate, prudent and worthwhile consideration when looking to mitigate IHT on an estate.