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Gifts to charities as part of inheritance tax planning

View profile for Philip Nelson
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Gifts to charities as part of inheritance tax planning

When estate planning is considered, the focus is usually on what reliefs are available from inheritance tax and a sometimes overlooked exemption is that of gifts to charity.

There are two aspects to this. Firstly a gift to charity is exempt from inheritance tax, so there is no tax at all to pay on that gift.  The charity has to be registered in the UK but can be for the benefit of those overseas.

Secondly, there can be a benefit to the family.  If 10% or more of an estate is left to charity, then the tax rate on the balance is reduced from 40% to 36%.  As you would expect from HMRC, the rules are complex, but in essence the charity receives 10% of the estate and the rest is taxed at a lower rate.  It is therefore a tax effective way of giving to charity.  The whole family need to be on board, as the other beneficiaries will receive less, but then so does the taxman.

Apart from tax, it is important to consider where to leave the funds. There are many charities in this country and many causes that can need assistance.  Although it is a personal decision, I try to point people towards local causes, either within their immediate area or within Yorkshire – you can make a real difference in supporting smaller, more locally-focused charities.

The other option is to create your own charity. Charities can be set up in wills and that can allow you to specify the causes which you want to support.  If you want to do this then it important to take advice and to think carefully about, both about the causes to support and, most importantly, about the people who will run the charity. You need charity trustees who understand your objectives and are willing to see them in action. If you can do that, then it is a very good way to leave a lasting legacy in your will.

Find out more about how we can help you when considering inheritance tax planning.

Our articles are intended for general information purposes only and are not a substitute for professional advice tailored to your specific circumstances. We are always very happy to discuss any plans, issues or concerns you may have and to clarify how we might be able to help. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.