Leaving a gift to charity in your Will – what are the benefits?

The ups and downs of life often mean that there are particular causes personal to us that we choose to support, be that by donating our time by volunteering in and around Marlow, or our money or personal possessions through fundraising and giving.  The tax system recognises the societal benefit of charitable giving, such as allowing charities to reclaim tax at basic rate on our donations through the Gift Aid scheme.  And you may gain a tax benefit if you choose to set up a charitable foundation in your lifetime.  

Many choose to continue to benefit their chosen charity after they die, by allowing for a charitable legacy in their Will.

Leaving money or other gifts to charity in a Will is not only an act of philanthropy which can be a comfort during your final days, but it will also bring tax benefits.  The tax relief can mean that there is more of your estate available for anyone you would like to benefit, as well as for your chosen causes.

Can I reduce my Inheritance Tax (IHT) bill by giving to charity before I die?

IHT is charged on the estate that you leave behind when you die.  It is broadly charged on the total value of your assets at the date of death, less any debts.  Anything you give away during your lifetime will no longer be part of your estate when you die.  But any gifts you make may be brought back in to be counted within the value of your estate, either in part or in full, if you made them within 7 years of your death.  However, gifts to charities are exempted from this rule, so any donations made will reduce the value of your estate for IHT purposes, regardless of when you made them.

How else can I reduce my IHT bill?

There are various reliefs and exemptions which can be used to reduce the value of your estate which is chargeable to tax, for example:

• Spousal exemption: assets pass tax-free between you and your husband, wife or civil partner.  
• Nil Rate Band (NRB): exempts the first £325,000 of estates.  Anything above this will be charged to IHT at a rate of 40%. 
• Residence Nil Rate Band (RNRB): exempts the first £175,000 of the value of a home you hold at death (or, broadly, which you disposed of before death so that the proceeds are within your estate), as long as this is passed to your children or grandchildren.  

The NRB and the RNRB can be transferred from a spouse or civil partner who dies before you, if they did not use them when they died.  This means that with careful planning, it is possible to leave £1M of your estate without attracting IHT. 

Can I reduce my IHT bill further by giving to charity?  

Many people like to remember their chosen charity or charities in their Will.  Not only will you benefit those you leave behind, but you can reduce your tax bill further, too.

The value of your estate will be reduced for tax purposes by any monetary gifts, or by the value of any possessions you donate.  This allowance is unlimited, so you could pay no IHT at all if you give your entire estate to charity in your Will.  If you decide to leave at least 10% of the value of your estate to charitable causes, the rate of IHT applied to the remaining value will be reduced from 40% to 36%.

Leaving gifts to charity in your Will is a way not only to benefit good causes after your death, but can significantly reduce the inheritance tax your estate will be required to pay.     

Is this only possible if I make a Will?

If you die without a valid Will, the laws of intestacy dictate who will receive what you leave behind.  Not only does this process last much longer and cost more to administer, but it can leave your family with uncertainty and confusion.  Leaving a note asking for a particular person or charity to benefit is unlikely to be respected.  And your estate’s tax bill will be higher than if you had left a carefully considered Will.  In short, if you wish to leave some of your estate to charity, and gain the tax advantages that this will bring, it is vital that you leave a well-drafted Will. 

Estate planning involves thinking about your motivations and your wishes.  The options can be complex, but putting plans in place now will reduce the stress that your loved ones face once you’re gone.  With the right guidance, you can protect your wealth, support your family and causes close to your heart, and give you the opportunity to build a lasting legacy with confidence.

If you’re based in Marlow and would like to explore your estate planning options, we’re here to support you every step of the way.

For more information please contact our legal advisor Bethan Chant.