Leave More Behind For Loved Ones Through Charity Tax Rule
Many people may not be aware that they could leave more behind for their loved ones, by taking advantage of charity rules...
Thanks to increasing house prices, more and more middle earners will have to face paying inheritance tax (IHT). However, many people may not be aware that they could leave more behind for their loved ones, by taking advantage of charity rules.
When savers decide to donate more than a tenth of their estate to charity, they will be able to leave more behind for the beneficiaries of their will, than those who are less charitable.
How does the charity rule work?
When it comes to IHT, the standard rate is 40%, which is charged on the part of an estate that falls above the threshold of £325,000 – but there is a way you can reduce this tax rate.
A lot of people plan to leave a sum of their estate behind to charity, and no IHT is due when it comes to donations. However, by gifting a charity over 10% of your wealth, the Government will award you with a bonus, which will see the rest of your estate be subject to a reduced inheritance tax rate of 36%.
So how much more can I leave behind?
By taking advantage of this legacy rule and reducing the IHT rate on your estate from 40% to 36%, you’ll be able to leave significantly more behind to loved ones.
A £600k estate, which has donated 10% to charity in the Will, would see £483,400 left behind for beneficiaries.
A £600k estate, which donates 9% to charity, would see £475,150 left to share between beneficiaries.
Using these two examples, it shows that there would be a difference of £8,250 more that could be left behind for family and loved ones, through donating at least 10% to good causes, once the taxman and charity have each taken their shares.
Beneficial for you and for charities
This rule will allow you to leave more for charitable causes, without worrying that your loved ones will be missing out, and the tax break is also giving charities a beneficial boost.
Your family would actually be no worse off if you left 10% of your estate to charity than if you decided to donate 4%, but charities could see thousands of pounds more in donations.
What to do if you plan on leaving money to charity
So, if you plan to leave a charitable legacy in your will, it’s best to keep these points in mind:
Make sure to include all the information your Executor will need to understand what you want to happen.
Ensure all the details of the charity in your will are correct, including the name of the charity, its registered charity number and address – this will avoid any disputes.
When leaving money to a particular branch of a charity, make sure to check they’re entitled to accept legacies – you can ask for their tax-exempt reference number.
Take legal advice, and include a clause in the will which dictates what will happen to your legacy should the charity merge or cease to exist.