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Giving to charity in your Will can now be very tax efficient

If you will have an inheritance tax liability when you die, gifting to charity could reduce the amount of inheritance tax you would pay by more than you would expect.


Gifting to charity in your Will

a lady raising money for a dog charity via a cake stall at a fair

Most of us know that what you leave to charity in your Will is not liable to Inheritance Tax. However, many do not realise it can reduce the amount of tax due on the rest of your estate too. All you need to do is donate at least 10% of your net estate (the amount liable to Inheritance Tax).

A simple example

Brian has an estate of £625,000 and after utilising is full Nil Rate Band, the net estate has a value of £300,000. He has asked for £25,000 to be donated to his favourite charity in his will. Inheritance tax is then charged on £275,000 @ 40% so the charity gets £25,000. HMRC gets £110,000 and Brian’s beneficiaries get £165,000.

A better alternative

If Brian had donated 10% of his net estate instead, which in this case would be £30,000, then the charity would get £30,000. HMRC would get £275,000 @36% = £99,000 and his beneficiaries would get £171,000. Most importantly to note, is that although the charity is getting £5,000 more, the beneficiaries will get £6,000 more, and HMRC £11,000 less.

In conclusion

This example shows that by ensuring your Will is worded correctly, charities close to your heart and your loved ones can potentially inherit significantly more, specifically where there is a potential inheritance tax liability on your death. This is a very simplified example, and our consultants and legal team can help with this, even if the figures are much more complex.

Goodwills can help

For some this will be clear, and for others it might just be gobbledygook. If you are unsure of the best way to leave money in your Will to charity, then we suggest you give Goodwills a call. We will be happy to help. Our telephone number is 01666 744002 or you can email goodwills@willsandtrusts.co.uk