Giving to charity is a wonderful way to make a positive impact on the world while also reducing your inheritance tax in the UK. In this article, we’ll explore how charitable giving can benefit both your chosen cause and your estate.

Firstly, it’s important to understand how inheritance tax (IHT) works in the UK. IHT is a tax on the estate of someone who has passed away, and it’s currently set at 40% on estates over £325,000. This means that if your estate is worth more than £325,000, your family may face a substantial tax bill.

However, there are ways to reduce the amount of IHT your estate will have to pay, and one of these is through charitable giving. When you leave a gift to a charity in your will, that gift is deducted from the value of your estate before IHT is calculated. This means that your estate will be worth less, and your heirs may be able to avoid or reduce their IHT bill.

For example, if you were to leave £100,000 of your estate to a charity of your choice you would save up to £40,000 in Inheritance Tax. Or looking at it another way it would only cost your estate £60,000. That’s a lot of extra ‘good’ in the world!

In addition to reducing IHT, charitable giving can also provide other benefits for your estate. For example, if you leave at least 10% of your estate to charity, you could qualify for a reduced rate of IHT. This is because the government offers a reduced rate of IHT for estates that leave a certain amount to charity. By leaving 10% of your estate to charity your IHT rate will reduce from 40% down to 36%.

For example, if you had an estate worth £2m and left £200,000 to a charity (or charities) of your choice. You would firstly save £80,000 in IHT on the gift that you made or 40% of £200,000. Let’s then say the remaining estate subject to IHT was £1.8m. You would pay a reduced IHT rate of 36% instead of 40%, a saving 4% on the remaining estate. This would save you a further £72,000 in Inheritance Tax. Therefore, a gift of £200,000 to charity would actually only cost your family estate about £48,000. In other words, an investment of £48,000 does £200,000 whole lot of good.

Furthermore, charitable giving can also help you achieve your philanthropic goals and leave a lasting legacy. By supporting a cause that’s important to you, you can make a meaningful impact on the world and inspire others to do the same.

If you’re considering leaving a gift to charity in your will, there are a few things to keep in mind. Firstly, it’s important to choose a reputable charity that aligns with your values and priorities. You should also consult with a qualified estate planning attorney to ensure that your wishes are carried out and your gift is structured in the most tax-efficient way possible.

In conclusion, giving to a charity on death is a powerful way to reduce your family’s inheritance tax in the UK while also making a positive impact on the world. By leaving a gift to charity in your will, you can support causes that are important to you, provide for your loved ones, and leave a lasting legacy.

If you would like advice on legacy giving or any other area of financial planning then please get in touch.