When making your will, you may want to consider leaving a gift to charity. There are various ways you may leave a gift. The simplest form of doing this is by leaving a pecuniary legacy, which is a sum of money. You may leave a specific item or items to charity, or you a percentage of the residue of your estate. The residue is everything which is left after all the liabilities, administration expenses, legacies, taxes and funeral expenses have been paid.
What benefits are there in leaving a gift to charity?
Of course, a major benefit is that the charity gain from the gift. However, there are other benefits of leaving a gift to charity.
If your estate is valued over the Inheritance Tax (IHT) threshold, your estate will have to pay IHT. However, any gifts left to charity are exempt from IHT. This will therefore reduce the size of your estate by the amount of the gift.
Even if your estate is over the IHT threshold after the gift is deducted, your estate may still benefit. The estate will qualify for a reduction of IHT if you leave more than 10% of your estate to a UK charity. The percentage of IHT your estate will pay will be reduced from 40% to 36%.
Therefore, leaving a gift to charity may reduce the amount of tax payable by your estate when you die.
How would I ensure that I qualify for the reduction?
The size of your estate may have gone up or down since you prepared your will. So, a gift of a specific sum may not necessarily equate to 10% of your estate. Therefore, the best way to ensure that your estate will qualify for an IHT reduction would be to leave a gift of 10% or more of your residue. This will also ensure that the charity doesn’t receive a disproportionately large or small sum compared to the other beneficiaries.
When you leave a gift to a charity in your will there may be the risk of the gift failing if the charity no longer exists or has changed since making your will. In order to reduce the risk of a gift to charity failing, we recommend that you have your will drafted professionally. This will ensure that if a charity no longer exists or has changed name, the money will still be paid to that charity or a similar charity with similar means.
If you are considering leaving a gift to charity, our specialist wills and probate team can assist. Call us today on 0800 988 7756.