Published on: 14th February 2022

Have You Thought About Leaving a Gift to Charity in Your Will?

A report from Legacy Foresight has found that the number of charitable bequests in Wills has risen almost 50% in the past three decades. In 1990, there were approximately 75,000 charitable bequests whilst in 2020, there were approximately 112,000. It is estimated that by 2030, UK charities will receive £5 billion from 146,000 testamentary charitable gifts.

Part of this substantial increase in the number of charitable bequests could be due to the passing of the Finance Bill 2012 which reduces the rate of Inheritance Tax (IHT) from 40% to 36% for those who leave 10% or more of their net taxable estate to charity (this refers to the value of a person's estate after deducting IHT exemptions, reliefs, and the Nil-Rate Band).

There can be notable benefits to gifting 10% or more of your taxable estate to charity. 

For example:
John Smith dies with £750,000 worth of assets in his sole name in his estate. He leaves £45,000 to charity and the rest to his nephew.
Estate: £750,000
Less Nil-Rate Band: £325,000
Taxable estate: £425,000

As £45,000 is more than 10% of the baseline taxable estate, the IHT rate is lowered to 36%. Because the £45,000 is not taxable, we can subtract it from the baseline figure (£425,000 - £45,000 = £380,000). The remaining estate of £380,000 taxed at 36% creates an IHT liability of £136,800, leaving £568,200 to his nephew.

If John Smith had left a lower figure to charity - for example, £35,000 - the baseline taxable estate would become £390,000 and would be taxed at 40% because the charitable legacy is less than 10% of the taxable estate. This would create an IHT bill of £156,000, leaving his nephew £559,000.

In this example, leaving over 10% of the taxable estate to charity means that both the beneficiaries and chosen charities received more funds. For this scenario, the charity received an additional £10,000, John Smith’s nephew received an additional £9,200, and the IHT bill was lowered by nearly £20,000. We can therefore see why good estate planning is needed to ensure the best possible outcomes are produced.

If you are interested in leaving funds to charities or would like more information about potential benefits of leaving charitable gifts, consider booking a no-obligation appointment with one of our consultants by calling 01732 868190 or by using our online form here.

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