Getting your name on a lifeboat
They say that nothing is certain except death and taxes, but there are many things we can plan to do that at least reduce the taxes part and one relief in particular can also help you be philanthropic on death.
All gifts made to qualifying charities are exempt from inheritance tax. The government recently introduced a reduced rate of Inheritance Tax for estates which have gifted 10% or more of the net estate to qualifying charities in order to encourage more people to do so. The net estate is the sum of all assets after deducting any debts, liabilities, reliefs, exemptions and the nil-rate band (usually first 650,000 of estate for a couple 2013/14). By gifting at least 10% of this net estate on the remainder of your estate would reduce from 40% to 36% as a reward.
This means that if you have a taxable estate and you make a bequest to charity in your Will, the bulk of the cost of the gift (up to 76%) may effectively be funded by HMRC!! So let’s see how this works.
If a couple have estate worth £1.2 million and on second death they leave all of their wealth to their family, we can see from Column 1 below how this would be taxed. If however they gifted £55,000 to charity and took advantage of the reduced rate of inheritance tax, we see the outcome in Column 2 following result:
|Nil Rate Band|
|Gift To Charity|
This means that the chosen charity receives £55,000 at a cost to the estate of just £13,200.
Of course it may well take quite a substantial gift to actually get your name on a lifeboat but leaving 10% of your net estate to charity may still be enough to make a significant difference to the charity of your choice without making a significant impact on your family’s inheritance.
If you would like to explore this, or any other matters surrounding inheritance tax, please do speak to us at Chilvester.