Charitable giving can cut inheritance tax bills
More people are leaving charitable legacies in their wills to reduce the inheritance tax paid by their estates.
New figures from the Charities Aid Foundation on the various tax reliefs claimed by individuals as a result of charitable donations show both inheritance tax relief and higher rate gift aid relief have now reached £630 million a year.
Margaret Rowe, a Partner with FBC Manby Bowdler's Wills, Probate and Lifetime Planning team, says she is seeing an increasing number of clients wanting to take advantage of the relief by leaving part of their estate to a good cause.
“We are finding that many of our clients, particularly those with a high net worth, are looking to take advantage of this as it can make a big difference to the amount of tax paid on their estate.
“By leaving 10 per cent of the estate to charity, the standard rate of 40 per cent is dropped to 36 per cent, which in some cases can potentially increase the amount the surviving family members and others inheriting receive.”
Prior to the introduction of this reduced rate, the 40 per cent rate was applicable on the whole of the remaining balance of an estate over the tax free allowance (currently £325,000) less any other exemptions which may be applicable.
Margaret added: “Although it sounds very straightforward – as in give money to charity and pay less tax – in reality, it can be a complex process. Whether you can use the reduced rate also depends on the type of assets you own, how you own them and whether you are entitled to any trust assets.”
The most recent figures available from HM Revenue & Customs show that total tax relief claimed by individuals on their charitable donations reached £1.2 billion in the 2014-15 tax year, with inheritance tax relief remaining the most important charitable tax relief for individuals.
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