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21st June 2019

Leave thousands extra to charity at no extra cost to your heirs.

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A change to the law in 2012 has largely passed unnoticed despite, in certain circumstances, being unusually generous to charity supporters. This is the relief from Inheritance Tax (“IHT” - the tax payable on death), whereby people who leave a certain amount in their Will to charity, obtain a benefit for their heirs: the rest of their estate is taxed at only 36%, instead of the usual 40%. In itself this is a help for those whose family would pay IHT on their death. Two little known quirks make it even better news! HMRC can end up paying your family….

The amount that needs to be left is not the headline “10%” of your estate, but instead is only 10% of a considerably lower “baseline” figure. For a married couple with an estate of £750,000, the benefit can be obtained through a legacy of £10,000 on the second death: most of that legacy would effectively be paid by HMRC through the IHT relief and so would cost the heirs a relatively small sum. The couple could give £10,000 to charity, but only £2,400 of it would come from their children’s inheritance.

Even better news: if you are already leaving a certain amount to charity and you increase it to the 10% of “baseline”, then your heirs will actually inherit MORE than if you hadn’t increased the legacy! The magic number is where the legacy is increased from 4% (or more) of baseline up to 10% of baseline; your charity gets more and so do your heirs. Win-win! (For everyone except HMRC).

Surely there’s a catch? Well, the wording needed in the Will is complicated, and in some cases so is the calculation, but your solicitor’s fees are likely to be far less than the extra your heirs will receive – see below.


Net Estate850,000
Nil Rate band of Couple(650,000)
"Baseline" amount200,000

LEGACY as % OF BASELINE

4%

6%

10%

Charity gets

8,000

12,000

20,000

HMRC gets

76,800

75,200

64,800

Heirs get

765,200

762,800

765,200


To help your favourite charities and your family, by updating your Will contact Carolyn Bagley on 01908 247015 or click here to email Carolyn.