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Making a Difference: Reducing Your Inheritance Tax By Gifting to Charity

26 October 2020

By KLO Financial Services

Legacy gifts are vital for charities and often make up a large proportion of their income. By making a gift to charity in your will, you can continue to support your favourite charity whilst simultaneously reducing the amount of inheritance tax payable on your estate.

Any money you leave in your will (or gift in your lifetime) to a UK charity is exempt from inheritance tax. There is no limit to this exemption, which means you can donate as much to the charity as you want, without being charged any inheritance tax. In doing this, there are many benefits:

Reduce the value of your estate – when you leave a gift to charity, your estate is reduced by the amount of the gift. This can be effective in reducing the net estate chargeable to inheritance tax.

Reduce the rate at which inheritance tax is payable – if you were to leave 10% or more of your estate to charity, you may benefit from a reduction in the rate of inheritance tax payable from 40% to 36% on the rest of your estate. This means that if you were already planning to leave 4% of your estate to charity, you may want to consider increasing this to 10%. More money would be given to your chosen charity, but the loved ones you leave behind would receive either the same, or more, once the tax reduction is taken into account.

What charities can you gift to? The criteria your chosen charity must meet include:

  • It must be a charity that is established in the EU or other specified country
  • It must meet the definition of a charity under the law of England and Wales
  • It must be regulated
  • The charity’s managers must be the fit and proper persons to manage the charity

How does will-giving make a difference?  Charities are an important part of everyday society, and they couldn’t deliver the important work they do without the generosity of the public. In 2019, people left more than £3 billion in their wills to good causes, making a significant difference to the charities and communities they help. At Birmingham St Mary’s Hospice, 1 in 5 individuals and their families are cared for thanks to a gift being left in a will.

You can hear more about the importance of will giving and the great work Birmingham St Mary’s Hospice provides in our podcast KLO Talks. In the episode, our very own Terry Michael sits down with Birmingham St Mary’s Hospice’s Partnerships Manager Helen Rawnsley. You can find the link to the podcast here.

The rules on how to work out what you can gift to charity to receive lower tax aren’t always straightforward, so it’s a good idea to get advice from an expert independent financial adviser who specialises in estate planning.

Thank you so much to KLO Financial Services for sharing their expertise when it comes to will giving. To find out how you could leave a legacy and have a lasting impact on the future of our Hospice, please visit our legacy page here.