InsightsInsight - Wills and Probate - POSTED: October 27 2016
Charitable Giving Pays: The benefit of leaving money to charity under the terms of your will
Brachers Charity Fortnight has been arranged to support this years’ chosen charity, the Blackthorn Trust.
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The Blackthorn Trust offers medical care, rehabilitation through work placements and specialist therapies to people with mental, physical or learning difficulties and relies on charitable giving to support their fantastic work.
Most people will donate to charities such as The Blackthorn Trust throughout their lifetime. However, most are unaware of the Inheritance Tax (IHT) benefits of including a charitable legacy to charities such as The Blackthorn Trust in their will.
Reduced rate of Inheritance Tax
Legacies to charity are an exempt transfer for IHT purposes. As such, any gift made to charity during your lifetime or under the terms of your will is exempt from IHT.
Furthermore, in 2012 the Government reduced the IHT payable on an estate from 40% to 36% when 10% of a person’s estate chargeable to IHT is left to charity. As such, anyone planning on leaving more than 4% of their estate to charity (whether by way of a specific cash legacy or under the terms of a trust) may want to consider increasing the legacy to 10% in order to benefit from the increased IHT saving.
Katie’s estate is worth £850,000 and her will leaves a £15,000 legacy to The Blackthorn Trust with the rest of her estate divided between her four children. After deducting an IHT allowance of £585,000 and paying IHT of £100,000, Katie’s children are due to receive £735,000 between them.
However, if Katie had increased her legacy to The Blackthorn Trust to 10% of her estate chargeable to IHT, the reduced rate of IHT would have applied meaning the IHT payable would have been £85,860 (reducing the IHT liability by £14,140), the legacy to The Blackthorn Trust increases from £15,000 to £26,500 and Katie’s children are due to receive £737,640 between them.
How can I ensure the reduce rate will apply?
It is difficult to predict exactly what the value of your estate is likely to be at the date of your death. Therefore, a form of words is used to ensure the legacy meets the necessary criteria whilst taking into account the value of your estate at the date of your death.
A relative has recently died. Can I still claim the relief?
Yes. For deaths after 6 April 2012, it is possible to complete a deed of variation within two years of the date of death to redirect the amount to charity which means the IHT relief can be claimed by the executors.
For more information on charitable giving, please contact Amy Lane on 01622 776427 or AmyLane@brachers.co.uk
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