Give more and save more tax

Many of us would like to leave money to charity but concerns about providing for our families can often limit the amount of any charitable gifts. 

What if there was a way in which you could leave more to charity without your family being affected? What if leaving more to charity actually meant that your family would be better off? 

This may all sound too good to be true but to encourage charitable giving the Finance Act 2012 reduces the rate of inheritance tax charged on a person’s estate from 40% to 36% where that person has left 10% of the net value of their estate to charity.

For many people, qualifying for this reduced rate of 36% will not significantly reduce the amount of inheritance tax due on their estate. However, the operation of the reduced rate does have an interesting twist.

If an estate is taxable and 4% of the net estate is left to charity, the non-charitable beneficiaries will receive the same amount as they would if 10% of the estate had been left to charity. If between 5% and 9% of the net estate is left to charity the other non-charitable beneficiaries will in fact receive less from the estate than if 10% of the net estate had been left to charity. 

The table below demonstrates how this would work with an estate valued at £500,000.

It seems strange to think that by leaving more to charity, your other beneficiaries actually receive more from your estate; this is the result of the reduced 36% rate and therefore by giving more you really can gain more.

The law and practice referred to in this article or webinar has been paraphrased or summarised. It might not be up-to-date with changes in the law and we do not guarantee the accuracy of any information provided at the time of reading. It should not be construed or relied upon as legal advice in relation to a specific set of circumstances.

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