Will & Charitable Legacies

Should you wish to include a charitable beneficiary in your Will; any gift to that charity will be exempt from inheritance tax.

Leaving more than 10% of your net estate to charity

Charity gifting can be a useful tool for mitigating inheritance tax. By leaving 10% or more of your net estate to charitable beneficiaries, you can reduce the rate of inheritance tax from 40% to 36%.
There are rules in place to test whether a gift to charity in a Will has met the 10% threshold. The 10% test is applied separately to each of the below three components and the reduced rate is then applied to the assets within each. (It is possible to elect for one or more components to be combined.)

1) The Survivorship Component
The Survivorship Component relates to joint assets where your share passes automatically by survivorship to the other owner upon death.

In this scenario, the owners are known as joint tenants. 

2) The Settled Property Component
If you are a beneficiary of a trust that forms part of your estate for Inheritance Tax purposes, those trust assets fall into this category.  If you are a beneficiary under more than one trust, the donation to charity has to be at least 10% of the combined total to qualify.

As the trust deed governs what happens to the assets after your death, it may not be possible to qualify under this component. It can, however, be merged with another component.

3) The General Component
This covers assets that you own outright or as tenants in common (each owner is regarded by the law as owning separate and distinct shares of the same property.)

If you have benefited from gifted property (known as ‘gifts with reservation’), these will form part of your estate for Inheritance Tax purposes but will not qualify for the reduced rate unless merged with one of the above components.

For most, their estate will fall into the ‘general component’. This is because joint assets will often be exempt from Inheritance Tax due to spouse exemption (no Inheritance Tax is payable between spouses or civil partners).

If you are thinking of leaving a Charitable Gift in your Will, we can advise you on the Inheritance Tax implications of this action.

When drafting your Will, we will also provide copies of the Charitable Information relating to your chosen beneficiary(s) as provided by the Charity Commission so that you see the full breakdown of where your money will be used.

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