Leaving a donation to charity in your will
For many of us, at some point in our life, we gain a huge appreciation for certain charities and the selfless hard work that they do either for us personally, for family members or friends, or for a cause that just happens to reach out and touch our heart. They have always played a significant role in helping vulnerable people as well as animals, but to successfully do so they heavily rely on the generosity of outside donations from everyday people to raise funds so that they can make the charity a continued operation.
A large portion of charitable donations - currently around one third of all donations - are kindly received from legacies in wills. Thousands of charitable services that serve communities and causes depend on these donations so that they can continue their work, further their research in specific fields and fund local, national or global campaigns.
If you've been thinking about writing a will or amending an existing will to include a generous donation to a charity of your choice, you'd be pleased to learn that there can be other financial benefits as it reduce and at times even eliminate the sum of inheritance tax that your estate pays.
Below we've highlighted some key information related to charity donations left in your will.
A charity donation can reduce the amount of inheritance tax paid
If you leave a gift donation to a charity in your will the sum will be deducted from the value of your overall estate when calculating the amount of inheritance tax that is due to be paid.
There is currently a £325,000 threshold in place for inheritance tax, known as the nil rate band. So, to give an example, if your estate was worth £400,000 and you were leaving it to a son or daughter, the value of your estate that would be subject to inheritance tax would stand at £75,000. This £75,000 sum would be taxed at 40%, which would mean an inheritance tax bill of £30,000. However, if you were to leave a charity donation in your will of say £5,000, then the value of your will subject to inheritance tax would be £70,000, resulting in only £28,000 needing to be paid, which is a £2,000 tax saving.
Leaving 10% or more to charities can further increase the tax savings
Choosing to leave 10% of your estate to a charity of your choice (after the deduction of the nil rate band) means your estate will receive a 4% reduction on inheritance tax, so the value of your estate that's subject to inheritance tax would be taxed at 36% instead of the standard 40%.
Using the same scenario as before, whereby the taxable part of your estate totals £75,000, if you were to leave 10% to charities (£7,500) then the sum of your estate that's taxable would drop to £67,500. This figure would be taxed at 36% leaving a tax liability of £24,300, which would be a tax saving of £5,700.
In most cases, the figures aren't always quite as straight forward as the examples used above, and the rules that relate to the reduced rate of inheritance tax can be fairly complex, but worthwhile pursuing as it can prove extremely beneficial to your estate and chosen charities - so it's always wise to seek professional advice.
If you'd like to discuss your will or would like to learn more about any of the other legal services that we offer here at Fonseca Law, don't hesitate to get in touch. You can contact our expert team of solicitors by calling 01495 303124, e-mailing firstname.lastname@example.org or by completing our online contact form.