Inheritance tax labelled ‘unfair’ and ‘cruel’ by expert
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Legacies account for more than £1 in every £6 of all the funds raised for charity, around £3.4 billion, according to the National Council for Voluntary Organisations. Remember a Charity Week starts tomorrow, which makes now a good time to decide what you want to leave behind.
The proportion of wills that include a charitable gift has risen by a quarter in the last 20 years, and this looks set to continue, with legacy income set to double by 2050.
Legacies are a lifeline for many good causes, and generous Britons have an added incentive to do good, as they get inheritance tax (IHT) benefits too.
However, you must plan carefully to avoid hidden pitfalls that could reduce the size of your bequest, or the amount you leave loved ones.
So now is a good time to check your will is written in the right way.
Inheritance tax requires careful planning (Image: Getty)
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said if you leave at least 10 per cent of your estate to charity, the rest of your net wealth above the IHT nil-rate thresholds will be taxed at 36 per cent, rather than 40 per cent.
“This won’t save you money overall, but will ensure a charity gets your money rather than the taxman.”
Beware leaving fixed sums, Coles cautioned. “Say your estate is worth £200,000 and you leave £10,000 to charity. That is 5 per cent of your estate but if you need care and nursing home fees shrink your estate to £50,000, you are suddenly leaving 20 per cent to charity.”
You can get round this by making specific bequests to your family, and leaving the remainder to charity.
“Alternatively, you can specify a fixed percentage of your estate goes to the charity.”
If you do leave the remainder or a percentage but house prices continue to rising you could end up leaving more than you intended, so consider the implications, Coles added.
Consider naming your chosen charity in a letter of wishes, rather than your actual will, which is in the public domain. “The charity may start chasing for the money, which can be distressing for whoever deals with probate,” Coles said.
Tell your family about any legacy well in advance, otherwise they may inherit less than they expect. “Make sure they know where they stand.”
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Leaving money to charity can really make a difference (Image: Getty)
If you leave a large chunk of your wealth to charity, your family could challenge your will, claiming you didn’t know what you were doing, or were under undue influence.
Explain your decision in your letter of wishes, Coles said. “If there are any questions over your mental capacity, you may want to get a doctor’s letter, written to your solicitor, stating you can understand and make decisions about your will.”
Calvert Lakes, an activity centre for people with disabilities in the Lake District, recently secured its future with a £100,000 legacy after Covid lockdowns cost the charity £1million.
Fundraising manager Jennifer Scott urged more people to consider including a legacy. “Never underestimate the difference a gift in your will can make, potentially to thousands of people.”