If you are considering leaving a gift to a charity in your will then you should know that you may be eligible for a reduction on the total inheritance tax due on your estate. Currently there is a £325,000 threshold on inheritance tax, referred to as the nil rate band, up to which there is no inheritance tax payable on your assets. Depending on your circumstances, up to an additional £325,000 threshold may be available should your spouse pass before you, leaving their entire estate to you in their will (known as the transferable nil rate band). Any assets that you hold above these thresholds will be taxed at a standard rate of 40%.
To encourage more people to leave a proportion of their estate to charity, in April 2012 the government introduced a system where if you leave more than 10% of your estate to charity it will reduce the total inheritance tax payable on your assets above the threshold from 40% to 36%. The gift to charity will also be entirely exempt from inheritance tax.
There are important legal considerations should you wish to make use of this exemption. It is of course not possible to predict exactly the size of your estate, and thus whether any legacy would meet the 10% requirement. Therefore a testator may wish to consider including specific wording to this effect.
Utilising charity tax relief can in some circumstances increase the residue estate available for the beneficiaries.
Our Tax, Trusts and Estates Department are specialist will-writers who can assist you with these issues.