Reduce Your Inheritance Tax Bill by Remembering A Charity

Making a Will is the best way to ensure that your wishes are carried out after your death. Whether you wish to pass assets and items to your family or to help a charity that is important to you or has helped you or your family through a difficult time.

You may donate to charities regularly for example by sponsoring friends who undertake adrenaline fuelled events, by payroll giving or donating to big media events with public figures involved, such as Children in Need. It is also possible to support charities by leaving a gift in your Will, whether by way of a cash gift or a by gifting a share of an estate. 

‘Remember a Charity’ is an annual campaign taking place this year between 5th-11th September, to encourage more people to consider leaving a gift to charity in their Wills. After all, charities can be there for us when we need it the most. Often charities rely on generous support from the public and legacies (gifts in Wills), can play a large part in fundraising to continue their good work. 

Charities of all kinds, at a national and local level, including mental health support, saving lives at sea, rescuing and caring for abandoned animals and playing a part in international disasters can make a real difference and there are many hundreds to choose from! Often, people think that a charitable legacy has to be large or that you can only choose a well-known charity, but the reality is that you can give any amount to any organisation. What is important is that you can fit those gifts around your wishes for family and friends. These legacy gifts small and large are a wonderful way to be remembered.

What is perhaps lesser known is that making gifts to charities in your Will can also be of benefit in terms of personal wealth tax planning. Inheritance Tax is payable on the value of assets in an estate where they exceed the available tax allowances. We all, as individuals, have a tax free allowance (called a ‘nil rate band’) of £325,000. Spouses and civil partners who leave their estates to each other can benefit from their individual allowances being transferrable between them. When spouses/civil partners leave their estates to each other, on the first death there is never any Inheritance Tax payable. On the second death, the executors can claim the allowance of that spouse/civil partner and also the unused portion of the allowance of the first spouse/civil partner to pass away. Potentially, a maximum of £650,000 can be available to be claimed in this scenario. 

There is also a further individual allowance of a maximum of £175,000 which can be claimed, and which is transferrable between spouses/civil partners known as the ‘residence nil rate band.’ This can be claimed where someone leaves their property (or sum equivalent to its value) in their Will directly to their lineal descendants (children, grandchildren etc.). However, this allowance only benefits those who own a residence (property) and those who have lineal descendants (which does include, as well as blood descendants, step-children, step-grandchildren but not collateral descendants such as nephews and nieces). 

The Chancellor announced in the 2022 Budget that these allowances would not be increased until at least 2026. Inheritance Tax liability can become a reality for many without realising and is payable at 40% on the surplus value of assets over the total available allowances!

However, since 2012 it is possible to reduce the rate of Inheritance Tax payable from 40% to 36% by leaving at least 10% of an estate (after deducting Inheritance tax exemptions, reliefs and the nil rate band) to charity. This is an option with the result of reducing the Inheritance Tax payable and also benefiting charities at the same time.

Our Lifetime Planning team at JCP Solicitors can offer guidance and advice regarding charitable gifting, Inheritance Tax and Inheritance Tax planning. If you’d like to get in touch with any queries or to discuss how to remember a charity in your Will, contact JCP Solicitors today on 03333 208 644 or email law@jcpsolicitors.co.uk.

For more information about Remember A Charity Week, please see www.rememberacharity.org.uk