Encouraging charitable giving

  • July 19, 2012
  • By Hunters Law

An additional Inheritance Tax (IHT) relief has been introduced which is designed to make it more attractive to individuals to bequeath part of their estate to charity. The change was made in the Finance Act 2012 and relates to deaths occurring on or after 6th April 2012.

The new IHT relief reduces the rate of IHT payable on a person’s taxable estate, from 40% to 36%, if 10% or more of their estate is left to charity.

Gifts to charities are already exempt from IHT, as are gifts to spouses and civil partners.  The new relief means that beneficiaries of a deceased person’s estate could benefit from a lower rate of IHT, so that the “cost” to them of more of the estate passing to charity is reduced.

The mechanics of the relief are not straightforward and will need to be considered carefully in each set of circumstances.  People intending to make a Will may wish to consider including suitable words to take advantage of the relief, but this must be done with care to avoid unintended consequences.  In some cases,  beneficiaries may find that it would be beneficial to enter into a Deed of Variation within two years of a death to increase marginally the amount left to charity.

Although the relief may be helpful, donors should still consider whether it would be more tax efficient or desirable for other reasons to give to charity during their lifetime, which can attract capital gains tax and income tax reliefs.

For further information, please contact a member of the Private Client Department.

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