If you are concerned about how much Inheritance Tax (IHT) your estate will be liable for when you pass away, leaving a gift to charity could reduce your bill. Gifts to charity, when properly executed, can reduce or, in certain circumstances, even eliminate your inheritance tax liability entirely as they do not count towards the taxable value of the estate. In this article, we look at the tax benefits of leaving gifts to charity, what you can gift, and how to leave a gift in your Will.
Leaving a gift to charity in your Will is called a ‘charitable legacy’. Many charities rely on charitable legacies to continue their work, and if you are looking at ways to reduce your inheritance tax liability and there is a charity to support, this could be an ideal solution.
Any gift to charity on your death will be exempt from Inheritance Tax. In addition, where you leave at least 10% of your net estate to charity, you can cut the IHT rate on the rest of your estate from 40% to 36%. This can make a huge difference to your final bill depending on the size of your estate.
Charitable legacies can take different forms. We can help advise you on which is the most appropriate for your circumstances and what is required to ensure you reach 10% of your net estate (if this is your goal).
Leaving a share of your estate is known as a residuary legacy. In your Will, this may be expressed as a percentage that should be left to your chosen charity.
Leaving a specific sum of money is known as a pecuniary legacy. You can choose a specific amount to leave to your chosen charity, but you may also wish to link the amount to the Retail Price Index, which will ensure that the value of the legacy is worth roughly the same in the future.
It is also possible to gift other items of your property to charity, such as land, buildings, books, paintings or even shares and securities. We can advise you whether leaving these in your Will or setting up a trust is most appropriate.
Our specialist advisors can help you to leave a gift to charity in a way that truly reflects your wishes.
If you do not yet have a Will, we can discuss leaving a charitable legacy as part of the process. We will draft your Will to include the charitable legacy in line with your wishes.
If you already have a Will in place, we can make an amendment to add a charitable legacy known as a codicil.
If this article has raised any questions or you would like to discuss any issues covered here, then please complete our contact form, or call us on 0131 225 1200 to speak to one of our specialist estate planning lawyers.
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