Inheritance Tax & Gifts to Charities by Wills

Gifts to Charities are exempt of Inheritance Tax.

Since April 2012 it has also been possible to reduce the rate of Inheritance Tax (IHT) by making a gifts to a registered Charity or “Community Amateur Sports Club” of more than 10% of your net estate and after deducting the Nil Rate Band allowance. The effective rate of IHT reduces from 40% to 36%. This means the cost of the charitable gift reduces the net cost overall considerably.

For example: Mark, who is single, died in 2013. In his will, he had made a bequest to a charity of 10% of his net estate. The residue is to pass equally to his nephews and nieces. His net estate is £750,000, comprising of his home and savings.

Net Estate                                                                       £750,000
Less Nil Rate Band Allowance                                     (£325,000)
Baseline amount                                                            £425,000
10% to chosen charities                                                (£42,500)
Amount chargeable to IHT                                           £382,500

(Baseline amount less gift)

IHT at 36%                                                                    £135,000
Net estate passing nephews and nieces                         £572,500    

(Net Estate less Charitable Gift less IHT)

Without the Charitable Gift

Net Estate                                                                       £750,000
Less Nil Rate Band Allowance                                     (£325,000)
Amount chargeable to IHT                                          £425,000
IHT at 40%                                                                      £170,000
Net estate passing nephews and nieces                   £580,000   

(Net estate less IHT)

Net Cost of Charitable £42,500 gift becomes £7,500

This because the gift is exempt of IHT and the rate of Inheritance Tax reduces to 36%.

Click here if you would like to amend your will to include a Charitable Gift or make a new will

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