Nothing should detract from the generous gesture of leaving money to charity in your will, but it is worth noting that it can also offer some advantageous tax benefits.
In some cases, donating a share of your estate to good causes could mean that other beneficiaries, such as family members, actually receive more than they would otherwise have done.
With charity fundraising hit by the cost of living crisis, organisations have never been in greater need of the estimated £3.9bn that is donated in the UK through wills each year.
However, it is important that those who choose to leave this lasting legacy understand the implications and ensure they take the necessary steps to safeguard the interests of and maximise the benefits for all parties.
Inheritance tax benefits
Gifts to UK charities are not subject to inheritance tax, which is levied on what is left of a deceased’s estate after deductions, such as exemptions and reliefs.
The rate of IHT you pay also falls from 40 per cent to 36 per cent if at least 10 per cent of the net estate is going to an organisation that is established for charitable purposes only, although there are a few exceptions.
The “net” is important as deductions can be significant and include the first £325,000 of a person’s estate – referred to as the nil-rate band threshold. Any unused threshold can also be transferred to the surviving partner, further reducing the value of the net estate. Expenses such as funeral costs, household bills, mortgages and credit card debt are tax-deductible too.
Clients gifting money to charity in their will frequently have a personal reason for doing so and are often heavily invested in where their donation goesOne way to reach the 10 per cent threshold is to leave a fixed lump sum to charity, but this may need amending if financial circumstances change and the legacy falls below the required amount. I advise clients to instead include an appropriately worded “formula clause”, best drafted by a legal professional, to ensure that whatever happens, that 10 per cent threshold is always met.
If gifting to non-UK charities, the rules tend to be more complicated and it is wise to seek professional advice. As of April 2024, for example, donations to charities in the EU or European Economic Area will no longer be eligible for IHT relief.
Choosing where the money goes
Clients gifting money to charity in their will frequently have a personal reason for doing so and are often heavily invested in where their donation goes.
