If you’re worried about the Inheritance Tax that might have to be paid when you die, giving away some of your money to charity – in your Will – can reduce the bill.
Charitable donations in a Will do not count towards your total estate value and therefore can reduce, or potentially eliminate the Inheritance Tax that you pay.
If you leave something to charity in your Will, then it won’t count towards the total taxable value of your estate. This is called leaving a ‘charitable legacy’.
Each person is entitled to a Nil Rate Band of £325,000 and any assets within this value are free of Inheritance Tax.
The Main Residence Nil Rate Band provides people with an additional tax free amount which is currently £150,000 (the amount you are entitled to depends on the value of your house and if you wish to pass on the house to a direct descendent it is important for each individual to check if they qualify). This band is increasing to £175,000 in April 2020.
Anything in excess of the Nil Rate Band and Main Residence Nil Rate Band is currently taxed at 40%.
If you decided to leave 10% of your ‘net estate’ value to a charity (i.e. the amount of your estate left after the nil-rate bands have been taken off), the Inheritance Tax rate reduces to 36% and any charitable gifts are free of Inheritance Tax.
I would recommend anybody who may be considering leaving a charitable legacy to seek independent financial advice and legal advice before amending their Will.
If you would like to discuss estate planning or any other financial planning matter, please do not hesitate to contact us on 0114 2588899 or email firstname.lastname@example.org. Our Independent Financial Advisers are qualified to provide advice in the areas of retirement planning, tax planning, savings, inheritance tax, investments and protection.
Source – Sophie Smith – Independent Financial Adviser 4.10.2019