Throughout the Covid pandemic, charities have had to cancel fundraisers and events, which has meant that they have missed out on vital donations. However, statistics show that the Covid-19 pandemic has increased the amount of charitable gifting in Wills, helping replenish the shortfall from the lack of fundraising. It has been reported that over £35 million of donations were left to charities in Wills in April alone.
If your estate is likely to attract inheritance tax, a gift to charity can mitigate this liability. With the exceptions of gifts to surviving spouses or charities, your estate would pay inheritance tax at a rate of 40% on anything above any available personal Nil Rate Band(£325,000), Transferable Nil Rate Band (unused allowance from a pre-deceased spouse) and the Residence Nil Rate Band (a further allowance where an estate is not more than £2 million in value and there is a property interest or proceeds passing to direct descendants). Tax planning may therefore be particularly attractive to single individuals with no direct descendants, who would expect to pay a rate of 40% inheritance tax on any part of their estate in excess of the Nil Rate Band of £325,000.
Any gift left to a UK charity is free of inheritance tax liability. Not only are charitable gifts tax-free but leaving gifts to charity in your Will could reduce your tax liability overall. When you leave at least 10% of your estate to charity, the inheritance tax rate of liability of the rest of your estate may be reduced to 36% from 40%.
You can list any charities that you wish to benefit from your estate in your Will. If you choose to name a specific charity, it is always best to include the charity number to be sure that your gift passes to your intended charitable beneficiary.
Alternatively, you can leave money or property in a discretionary trust and leave it up to your trustees to decide which charities will benefit. If you choose to let the trustees decide where your money goes, you may wish to leave non-binding instructions in a letter of wishes to help guide them.
You have several options of what to leave a charity in your Will. It is helpful to consider what might benefit them and the cause the most. Your gift may be:
● A cash amount
● A specific property or asset
● Your entire residuary estate or a share in your residuary estate. Your residuary estate is what is left of your estate after any specified gifts and payment of any liabilities including tax.
Under the Inheritance (Provision for Family and Dependants) Act 1975, if you fail to make a reasonable provision in your Will for a person who could be seen as a dependant, the dependant can bring a claim against the estate. If successful, this could overturn the provisions of the Will that may have benefited charities among others. Those listed as dependants under the 1975 Act include a spouse and children.
There is also a possibility that a claim could be made, particularly by a family member, if they believe that you were subjected to undue influence to make a Will or you were not of sound mind when you made the will.
It is strongly advisable, that if you are contemplating a gift to charity and you have close family members of dependants, you seek legal advice before drafting the Will.
Members of our large Private Client team are on hand to advise on any issues relating to Wills, Trusts and Charitable Legacies. Please telephone 01892 526344 or email enquiries@berryandlamberts.co.uk.
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If suitable, we can offer an initial one hour appointment with a solicitor for a fixed cost of £100 + VAT, giving you the opportunity to discuss your matter and consider your options. This can be in person, via telephone or video link. Please get in touch if you feel this type of appointment would be beneficial.
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis f the information included and should take appropriate professional advice upon their own particular circumstances.
