Inheritance tax

“Many of our clients are great supporters of charities during their lifetimes and decide to include legacies to charities in their Wills. Such legacies range from a number of smaller monetary gifts to leaving a significant proportion of their estate to charities.

In broad terms, Inheritance Tax is charged at a rate of 40% on the value of an individual’s estate which exceeds any available tax free allowances.

By leaving 10% or more of your net estate to charity, the overall rate of Inheritance Tax on the net estate will be reduced from 40% to 36%, which can result in a significant tax saving. Although the basic premise is straightforward, in practice ensuring that your estate will benefit from the 36% rate of Inheritance Tax is quite complex. It is therefore important that you seek specialist advice if you are thinking about leaving 10% or more of your estate to charity with a view to achieving the reduced 36% rate of Inheritance Tax.

If you are a beneficiary of an estate, you may also wish to consider redirecting your entitlement under the deceased’s Will to one or more charities.

This can be implemented by Deed of Variation, which must be completed within two years of the date of death and with the consent of all beneficiaries who would be affected by the variation. Aside from benefitting your chosen charities, you could retrospectively allow the estate to benefit from a saving in Inheritance Tax.

It is important to consider your circumstances in the round when deciding who should benefit under your Will and we always recommend that people review their Wills every five years. Saving on Inheritance Tax is only one aspect of good succession planning and it is particularly important to consider the needs of your other beneficiaries when preparing a Will.”