Murray Beith Murray Partner, Andrew Paterson, writes in The Scotsman today about the importance of careful estate planning when giving to charity. Read the full article below, republished by kind permission of The Scotsman.
It used to be said that giving was 80 per cent emotion and 20 per cent rational. I wonder how those percentages might have changed as society copes with the pandemic. When we talk about ‘rational‘ and ‘money’ together, however, it invariably still revolves around tax planning.
The charity sector has been devastated by the turmoil surrounding people’s personal finances and their ability and indeed opportunity to give. Furlough may have spared many from desperate money worries, but the true impact of the pandemic won’t be realised until everyone stands on their own financial feet again.
Certainly, the impact on fundraising is going to have far-reaching repercussions. The current position may concentrate minds on how best to donate, both in your lifetime and through your Will.
Cancer Research UK highlighted figures from the Institute of Public Policy Research, showing the UK could lose almost £8 billion of investment in life-saving research by 2027, attributable mainly to lost charity income. The impact on smaller charities is colossal and estimates suggest that 40 per cent of charities in the UK have just six months of reserves, with a further nine per cent having no cash reserves or not enough to last a month.
This heightens the focus on the emotional and rational reasons behind charitable giving. Obviously, there are altruistic motives in giving, but there are practical considerations too – in its simplest form, tax planning.
As ever, when it comes to tax, nothing is simple and expert advice is needed to ensure your wishes and desired outcomes are achieved. We’ll all be familiar with ticking the Gift Aid box as we sponsor friends and family to allow charities to reclaim tax on donations, but charitable giving and planning is considerably more complicated.
One practical issue revolves around inheritance tax (IHT) and carefully planned giving can reduce or even eliminate your IHT liability. Any gift to a charity doesn’t form part of the taxable value of your estate and if you leave 10 per cent or more of your net estate to charity, the IHT rate on the rest of your estate (if you are still liable) drops from 40 to 36 per cent.
There are numerous ways of achieving this and your Will needs a clarity of purpose to ensure your wishes are met. It is also worth remembering the issue of Legal Rights, which affects what is classed as ‘moveable estate’ in Scotland and includes bank accounts, share portfolios, cars, furniture, jewellery and more. This offers protection from being disinherited to a spouse, civil partner and children so intentions of charitable giving could be contested. A disinherited spouse/civil partner or children (natural or adopted, but not step-children), are entitled to claim one-third or one-half of the moveable estate depending who survives the deceased. The best-laid plans of charitable giving could be thwarted.
Rational considerations also come into play for lifetime gifts, as relief is available on both income tax and capital gains tax. The emotional act of, figuratively speaking, putting your hand in your pocket can bring with it very practical benefits. It is important to balance the reasons and benefits of any donation.
I suspect few professional advisers would repeat Mother Theresa’s advice to ‘give until it hurts’, but they have a duty to ensure you are aware of the tax implications and benefits of giving. Many small charities may survive because of that.
Andrew Paterson is a Partner within our Asset Protection Group and specialises in estate planning and tax. If this article has raised any questions or you would like to discuss your affairs then please complete our contact form or call us on 0131 225 1200.
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