It seems that people in the UK are a charitable bunch.
In fact, last year, just under £3 billion was donated to charity in wills, which is expected to rise to £3.4 billion by 2022. This figure means that 3.5% of all of the money left in estates is now comprised of charitable giving.
What sort of charities benefit?
There is certainly no shortage of choice when it comes to picking a charity, but there are four industries that receive more than the rest. The lion’s share (38%) goes to healthcare causes, with Cancer Research UK coming out on top. After that, animal charities get the next biggest portion with 15%, followed closely by disability charities and conservation each receiving 8% of legacies.
Writing a will
When writing a will, the main thing you need to decide is how you will divide up your property and money. The people or organisations you leave money to are called beneficiaries.
Some of your assets will be easier to put a value on, such as savings accounts and valuable items. However, other things will require an educated guess or formal valuation: for example, your property, investments or business.
The tax benefits of giving to charity
If you plan to leave everything to your spouse, that is tax-free, but leaving money to anyone else means your estate may be eligible for inheritance tax. Often described as the ‘most hated tax’, inheritance tax is charged at 40% on estates with a value of over £325,000, although in some circumstances reliefs are available to increase this figure.
However, leaving money to charity can substantially cut or remove the need for an inheritance tax bill.
1. Eliminate your inheritance tax bill
If your total estate is worth over £325,000, or a higher figure where additional reliefs are available, you can donate enough to bring it under that amount, meaning the amount left can be split between family and friends without being subject to tax.
2. Reduce your inheritance tax bill
Giving at least 10% of your estate to charity means that inheritance tax is reduced down from 40% to 36%, even if the value of the remaining estate remains above £325,000.
Three types of legacy
There are three different ways to gift your money to charity:
This is the most common, and the simplest form of legacy. This is when you leave a set amount of cash to a particular beneficiary. For example, leaving £7,000 to Farleigh Hospice.
This is when you leave a specific item, perhaps some stocks or shares, a valuable item or a property to a beneficiary. For example, leaving a holiday cottage to CHESS.
A residuary beneficiary is the person or organisation who receives the remaining balance of the estate when everything else has been paid (debts, gifts and taxes). For example, Columbus School & College could be a residuary beneficiary if they are left the balance of the estate after all other costs and gifts have been paid out.
If you would like to make provision in your Will for your favourite charities or would like to know more about reducing your potential IHT liability please contact the Private Client team at Gepp Solicitors on 01245 228125 or firstname.lastname@example.org .