Many people like to leave a gift to charity in their Will by way of a legacy which not only benefits the charity but also has tax benefits for the donor.
When an estate is valued at greater than £325,000, it becomes liable for Inheritance Tax, which is charged at 40%.
How does a charity legacy affect Inheritance Tax?
By leaving a gift to charity it may be possible to reduce the amount of Inheritance Tax paid on the chargeable part of the estate.
Bequeathing a specific gift to a charity, such as a certain asset or amount of money, means the financial value of the gift will not be included when calculating the Inheritance Tax on the estate.
For example, by leaving £10,000 to charity, not only will the charity benefit, but the estate will have reduced its liability by £10,000 potentially saving £4,000.
If you wish to make a sizable donation to charity through a legacy, by leaving 10% of your ‘net value’ (this will be dependent on circumstances such as being married and gifts made during a lifetime), the amount of tax liable will be reduced from 40% to 36%.
Can I control how my charity legacy is used?
It is also possible to nominate a specific purpose for any legacy you leave by including a wish on how the money should be used. In such cases care should be taken in the drafting. If the purpose of the legacy is too restrictive, the charity may be unable to use it, meaning they have to apply to the Charity Commission to allow the money to be used for other purposes.
How do I know the best way to set up a charity legacy in my Will?
Inheritance Tax calculations and estate planning can be quite complicated, so it is recommended that you discuss your circumstances with an expert. They will be able to advise you on potential issues, such as a family member contesting the legacy if they feel they have not been reasonably provided for, particularly if they have been financially dependent on you.
They may also contest on basis that they feel the legacy was written under undue influence or that you were not of sound of mind whilst making the gift. This could leave the gift or even the entire Will being declared invalid.
To understand how to make the best choices for those your leave behind speak to one of our expert Wills and Probate team, call us on 01243 216900 or email us at firstname.lastname@example.org.
Services from legalmatters during Covid-19 pandemic
Here at legalmatters, we continue to do everything we possibly can to service our existing and new clients during these very difficult times.
Our ability to provide remote services makes us stand out from the crowd. With legalmatters, your Will, power of attorney, probate, trust and tax advice, conveyancing and legal services for business owners, can all be dealt with over the phone, by video conference or by email and documents are sent to you by post. We are also advising our clients on signature processes bearing in mind social distancing measures.
Meanwhile, the office continues to operate with minimal skeleton staff for the protection of our staff, clients and visitors, enabling us to still process physical documents for our clients. If you do find that you need to call into the office for instance to have documents witnessed when it is otherwise difficult for you to arrange that with family and friends then do please get in touch.