Here we explain how you can reduce your inheritance tax bill (that would otherwise be paid when you die) by remembering a charity such as St Richard’s Hospice in your will.
Leaving a part, or your entire estate to charity can reduce, and in some situations, eliminate any Inheritance Tax liability.
If you leave something to St Richard’s Hospice in your will, it won’t count towards the total taxable value of your estate. This is called leaving a ‘charitable legacy’. You can also cut the Inheritance Tax rate on the rest of your estate from 40% to 36% if you leave at least 10% of your estate to a charity.
To illustrate how this would work, let’s say that when you died:
- Your net estate was worth £600,000.
- You have your full Inheritance Tax allowance (currently £500,000 for the 2021/2022 tax year comprised of a £325,000 nil rate band and £175,000 residence nil rate band. (Please note the latter is only available if you have a lineal descendent- i.e., children).
- You weren’t married or in a civil partnership (the spouse exemption is not available if you are unmarried).
- Thus, the ‘net estate’ is £100,000 (i.e., £600,000 minus £500,000). And there is Inheritance Tax to pay on £100,000 at a rate of 40%
- So, your estate would have to pay a tax bill of £40,000 (i.e., 40% of £100,000).
But if you wanted to qualify for the 10% reduction, and reduce the tax bill by making a charitable gift:
- You would leave your beneficiaries £540,000, and £60,000 to charity in your will (which is 10% of your ‘net value’ of £100,000).
- The estate would then pay 36% on £40,000 worth of assets instead, rather than 40% on the amount (£100,000), over the threshold.
This means that your estate would pay just £16,000 in Inheritance Tax.
In this example making this charitable legacy would shave off £24,000 from the Inheritance Tax bill and ensure a generous gift to your preferred charity. This is therefore worth considering if you are keen to support a charity, such as St Richard’s Hospice after your death.
If you want to remove any inheritance tax due, you could choose to gift away anything that is in excess of your available allowances. For married couples, they can leave their estate to their surviving spouse without any inheritance tax, but eventually, on the death of the second spouse, any tax would be become payable.
As your will is a legally binding document, and the subject of charitable legacies can be complex, it’s sensible to seek professional help when making a legacy in your will. It may be good idea to get the advice of a professional advisor who specialises in estate planning and we advise you speak to your preferred advisor.
If you are seeking advice and would like to discuss such financial planning needs, advisors such as EVA Capital Management would be more than happy to assist. Please email at or call 01905 21763.