Understanding how to save your beneficiaries Inheritance Tax

20th November, 2019

Why embracing the spirit of goodwill during the festive season could save your beneficiaries Inheritance Tax…

It’s no secret that charities rely heavily on legacies left by generous individuals in their Wills, with £3.36bn left to charities through legacies in 2018.

Over 10,000 charities were named in Wills last year with 6 in 100 people leaving a gift to a charity in their Will.

Charities enjoy an exemption from Inheritance Tax, and therefore are not subject to the 40 per cent levy that falls on other non exempt beneficiaries.

In addition, if an individual leaves 10 per cent of the value of their estate to charity, the rate of Inheritance Tax charged on the estate as a whole reduces to 36 per cent, which for high value estates can mean a significant saving for the non-charity beneficiaries.

Small legacies to charity are common in Wills and where the gifts are only modest, the reduced rate is unlikely to be relevant.

However, if an individual wishes to make more significant charitable gifts, it can be worth considering increasing those gifts to make sure that the 10 per cent threshold is met to secure the reduced 36 per cent rate of tax.

Where the figures are carefully considered, this can result in more for both the charities and for the other beneficiaries due to the reduced rate of tax.

For Executors administering estates with charitable beneficiaries, it is important to consider transferring estate assets to the charities for them to dispose of rather than selling assets themselves before distributing the cash proceeds.

This is because charities are exempt from Capital Gains Tax arising on the sale of assets whereas the Executors are not and there could be a nasty surprise for any Executor who fails to obtain all of the charitable tax benefits that are available.

James Wallace Wills, Trusts and Tax Partner Email: [email protected] Tel: 01244 405 588

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