Last year, the outbreak of the coronavirus pandemic saw a huge surge in those leaving money to charity in their wills.
Figures published in the Independent confirmed that legacy-giving increased tenfold between February and April 2020 – up from £3.5 million to £35 million. And yet, giving was down for the year as a whole, partly due to delays with probate.
Last year’s Remember a Charity Week enlisted the help of 70s icons the Wombles to teach us all to remember a cause we care about, with elder-Womble Uncle Bulgaria using the one-off special to brand a gift to charity “a present for every generation to come.”
But you don’t need to wait until this year’s Remember a Charity Week before acting.
Keep reading for your guide to leaving a charitable legacy, including the unexpected tax benefits it could bring.
First, be sure you have a will in place
The latest research suggests that around 59% of UK adults don’t have a will. While thinking about and planning for our deaths might not be a comfortable process, it is vitally important.
A will is a fantastic way to give money to a cause you care about, but it is also the simplest way to make all of your wishes are known. It can save your loved ones added stress and expense in the future too, at what will already be an exceedingly tough time for them.
If you’re considering leaving a charitable legacy, you will need to make sure that this is noted in your will. If you don’t have one, or it’s not up to date, make this your first step.
What is a charitable legacy?
Once you have a will in place you can use it to ensure that your death will help a cause you care about, by leaving a charitable legacy.
Put simply, you can specify an item or amount to leave to the charity of your choice. There are three main ways to do it.
Residuary legacy
You can use a residuary legacy to leave either the whole or a percentage of your estate to a chosen charity. The amount that is given will be the value of your estate or a percentage of it, once all other bequests have been made and all other costs and debts have been paid.
Pecuniary legacy
A pecuniary legacy allows you to bequeath a specific sum of money to the cause or causes that mean the most to you. This is one of the simplest ways to donate money to a chosen charity and is also one of the most popular.
Specific legacy
If you have a specific item you would like to give to your chosen charity, you can use a specific legacy to do so. You’ll need to be absolutely clear about which item you are donating to avoid any complications or ambiguity, and the exact charity it is going to.
Inheritance tax rules and the nil-rate band
For the 2021/22 tax year Inheritance Tax (IHT) is paid at 40% on the value of your estate above the IHT threshold, or “nil-rate band”.
The nil-rate band was frozen by the chancellor in his Spring Budget and is set to remain at its current rate of ÂŁ325,000 until at least 2026.
If your estate is valued at over ÂŁ325,000, any excess could be liable for a 40% IHT charge.
You should be aware though, that the nil-rate band can also be passed to a spouse or civil partner, meaning you could have a threshold of up to ÂŁ650,000 before IHT becomes payable.
If you leave your home to a descendant – such as a child or a grandchild – you could make use of the “residence nil-rate band” too. This stands at £175,000 for the 2021/22 tax year and could therefore raise your nil-rate band to £500,000, or £1 million for a married or civil-partnered couple.
The IHT benefits of leaving a charitable legacy
As well as helping to support a cause you care about, charitable gifts and donations aren’t liable for IHT. This means that by making charitable gifts you are taking this amount out of the value of your estate for IHT calculation purposes.
Lowering the value of your estate can lessen the liability you leave behind, lessening the impact on loved ones.
There are further benefits too. If you give 10% or more of your estate’s value to charity, the overall rate of IHT payable drops. Instead of the standard 40%, any part of your estate that exceeds your IHT threshold will be taxed at just 36%.
Get in touch
Estate planning is vitally important and there are quick and easy steps you can take.
Put a will in place now and remember that you don’t need to wait until Remember a Charity Week to set aside a part of your estate to help a cause you care about.
At Expert Wealth, our Chartered Financial Planner and Accredited Financial Planning Firm status means that we have the knowledge and expertise to help you make tax-efficient plans for your future, whatever your wishes. Please get in touch if you’d like to discuss any aspect of your long-term financial plans.
Please note
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.
