Giving to charity is something that we do a lot in Britain. According to the Charities Aid Foundation (CAF), in 2017 the amount donated to charity came to £10.3 billion. It’s fair to say that as a nation we support a number of charities, whether directly or through sponsorship, and enjoy giving to those causes that we believe in. So much so, that it is not unusual for individuals to leave an, often significant, amount to charity in their will.
As well as the feel-good factor that gives us, and the knowledge that we are helping our preferred cause(s) even after we have passed away, there are other benefits too – notably to our loved ones. We take a closer look at charitable donations this month and, in particular, to the tax benefits they can offer.
Cutting your tax inheritance bill
Leaving money to charity will go some way to reducing the inheritance tax that your loved ones will have to pay when they come to inherit what you left them in your will. There are two ways in which you can do this:
- Donating while you are still alive. This reduces the value of your total estate and thus the inheritance bill that goes with it.
- Leaving part, or all, of your estate to charity in your will. This is known as ‘charitable relief’ and will again reduce the overall value of your estate.
The value of your estate
The final value of your estate is calculated by taking into account everything you own, including, for example, property, business interests, money, valuables, or stocks and shares. By donating a part of that to charity – be it cash, a particular item or items, or the remaining amount left over after you have distributed your belongings to your loved ones – the value of that donation is taken off the total value of your estate.
Reducing your inheritance tax rate
You can go a step further by reducing the rate of inheritance tax to be paid by donating 10% or more of your estate to charity. The current threshold for inheritance tax is £325,000, or double that at £650,000 if you have a partner. The standard rate of inheritance tax is 40% of the total value of your estate above those thresholds – for a full reminder have another look at our article on this.
By donating more than 10% of your estate to charity you can reduce the inheritance tax bill from 40% to 36%.
How to set out your wishes in your will
If you are considering leaving a donation to a charity in your will make sure that you include its full name. If you are not sure of what that is you can check the charity registers in England and Wales, Northern Ireland, and Scotland for the full and correct details.
For advice and assistance in preparing your will, the best way of donating to a charity of your choice, and reducing your inheritance tax bill talk to one of our IWC Probate Services specialists. Get in touch with us by phone on 020 8017 1029 or on email at firstname.lastname@example.org and we will be happy to have an informal chat or make an appointment.