The majority of charities rely on fundraising and donations to carry on operating. Choosing to leave a portion of your estate as a legacy is a powerful method of supporting your chosen charity. Yet a less well-known advantage is that it also offers the opportunity to save Inheritance Tax. Steve Wright, our Estates Director explains some of the benefits of leaving a legacy.
Over £3 billion is donated to charities and good causes in the UK each year by people leaving a legacy in their Will. The power of legacies has become particularly relevant in the face of the pandemic, which has left a range of charities struggling to maintain income after restrictions affected numerous fundraising activities.
Many of us choose to regularly support a good cause or chosen charity; usually through ad-hoc donations or sponsorship. Some go one step further, setting up a monthly payment to provide a regular donation. Yet just 7% of people in the UK currently leave the gift of a legacy to a charity in their Will.
This might be because some of us just don’t realise it’s an option or we want to ensure that our family and friends are looked after first. But it’s worth being aware that leaving a legacy can offer a significant tax break when it comes to Inheritance Tax. It can even mean that you can make your money go further!
Firstly, it’s worth noting that money given to a UK charity, whether it’s during your lifetime or as part of a legacy in your Will, is free from any Inheritance Tax.
Yet the real benefit comes when you choose to leave 10% or more of your estate to charity. At this point the rate of Inheritance Tax on your estate drops from 40% to a lower rate of 36%. In practice, this can create a way to pass more on to your preferred charity, without negatively affecting the amount your heirs receive.
Here’s an example on how this can work in practice, based on an estate worth £1 million:
|4% charitable legacy
|10% charitable legacy
|Amount passing to charity
|Inheritance Tax bill
|Final payment to beneficiaries
It’s clear that considering a larger legacy for your chosen charity can, in practice, be a very valuable exercise! In recent years many of us have wanted to become more socially conscious too. Leaving a legacy can be a powerful way to make a hugely positive impact on a charity which you care deeply about.
Find out more
Download our free Inheritance Tax planning guide.