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How and why to support your favourite charities in your will and the tax benefits for you

BY: Paul0 COMMENTS CATEGORY: Inheritance Tax

Discover the vital importance of gifts in wills to charities, the types of gifts you can leave and the tax advantages of doing so.

This post explains why and how to leave money to charities in your will and how to get yours sorted with zero fuss, today.

 


Why give to charity in your will?

Every year, people in the UK leave £2.9 billion to charities in their wills. These gifts can make a lasting impression on your favourite charities, allowing them to continue to operate and improve their services. In the last 12 months Farewill has raised £40 million in legacy donations.

“It’s incredible how generous the British public are” says Dominique Abranson, Legacy and in Memory Manager for WaterAid, “gifts from wills are absolutely vital in helping us reach everyone everywhere with clean water, decent toilets and good hygiene and transforming lives of the communities we work with overseas”

The charity might be a cause you’ve supported all your life making periodic donations. You might have encountered your chosen charity during medical treatment or end-of-life care for a loved one. Or you may be looking to minimise the amount of tax you pay when you die.

What types of legacy gifts can you give to your chosen charity?

There are three types of charitable legacies that you can choose from.

Pecuniary

A pecuniary legacy gift is the simplest and most common way of leaving a gift to charity in your will. You simply state your intention to leave a specified sum to your chosen charity. The executor of your estate is then tasked with making sure this sum reaches your intended charity.

Specific

A specific legacy gift relates to a particular item that you wish to leave to a charity of your choice. It may be a property, a road vehicle that the charity could benefit from or even shares.

Residuary

A residuary legacy gift is when you leave the whole of your estate or a percentage of your estate, The percentage you choose remains the same regardless of the value of your estate when you die.

While a cash (pecuniary) gift is a simple way to leave a gift to your chosen charity, it’s worth noting that the sum you include in your will today may not have the intended impact when the time comes. £1,000 today is a considerable sum but, in 30 years, it may not stretch as far.

What are the tax advantages of leaving gifts to charity?

Leaving a gift to charity in your will can reduce the tax your loved ones pay on what you leave them.

Inheritance tax is charged at 40% and applies to the proportion of your estate valued above £325,000 (£650,000 for married couples).

You can reduce the inheritance tax rate on the remainder of your estate (above £325,000) from 40% to 36%, if you leave at least 10% of your ‘net estate’ to a charity.

Here’s a worked example, without a charitable gift:

  • Your net estate is worth £425,000
  • You leave everything to your partner (unmarried). £100,000 is liable for inheritance tax (£425,000 – £325,000 tax allowance)
  • £100,000 is charged inheritance tax at 40%, equalling £40,000 due in tax.
  • So, £60,000 is left after inheritance tax has been subtracted
  • Your partner gets £385,000 after tax (£325,000 + £60,000)

Here’s a worked example, with a 10% charitable gift:

  • Your net estate is worth £425,000
  • You leave 10% of your estate (tax free) to charity £42,500 (net estate is now worth £382,500)
  • You leave the remainder to your partner (unmarried), £57,500 is liable for inheritance tax (£382,500 – £325,000 tax allowance)
  • £57,500 is charged inheritance tax at 36% (lower charity rate), equalling £20,700 due in tax
  • So £36,800 is left after inheritance tax has been subtracted
  • Your partner gets £361,800 after tax (£325,000 + £36,800), and the charity gets £42,500.

In the above example your partner gets £23,200 less, but the charity has gained nearly double that – £42,500 for good causes.

How to find details of a charity you wish to support?

Wherever you are based in the UK, these online registers will help you find contact details of the charity you wish to support:

England and Wales

Charities Commission’s register of charities

Scotland

Scottish Charity Regulator’s charity register

Northern Ireland

The Charity Commission for Northern Ireland

Next steps to give to charity in your will

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