Inheritance tax: The ‘little known benefit’ that has a ‘significant impact’ | Personal Finance | Finance
IHT is paid on the estate of someone who has died, including all property, possessions and money. Everything over the threshold, which is £325,000 but can be increased in some instances, is taxed at 40 percent.
Receipts for IHT came to around £6.1billion in the 2021/22 financial year, which is a rise of 14 percent or £729million from the year before.
This is now the highest level on record and is a continuation of an upward trend in inheritance tax which began in 2009/10.
Express.co.uk spoke exclusively to Mark Greer, managing director of Charities Aid Foundation about a “little-known benefit” that can reduce someone’s IHT bill on the rest of their estate.
He said: “ It’s a little-known benefit that giving to charity can reduce your IHT bill on the rest of your estate.
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‘A gift to a UK charity is free from IHT, meaning that the money is removed from the value of a donor’s estate before tax is calculated.
“In addition to the donation being tax free, charitable gifts can reduce the amount of inheritance tax paid on the rest of the estate.
“If 10 percent or more of the estate is gifted to charity, then the rate of IHT paid on the rest of the estate is reduced from 40 percent to 36 percent.”
Mr Greer explained that gifts in Wills can therefore have a positive impact on the remainder of one’s estate, as well as make a difference to the causes that donors care about the most.
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For instance, a £100,000 gift to charity from a £1million estate only costs the beneficiaries £24,000.
Britons can leave money in a Will to charities if they wish to keep giving and make a difference.
He continued: “Leaving money to charity in a Will can have a significant impact on both an individual cause and help to accelerate progress in society.
“For many donors, it can be the ultimate expression of a lifetime of support, where they can make a far more substantial donation than they ever could in their lifetime.”
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He explained that gifts left in Wills currently raise £3.4billion annually, accounting for 16 percent of all fundraised income for UK charities, and this number is expected to double again by 2050.
Mr Greer added: “Donors should always speak to a dedicated professional tax adviser if they are looking to reduce their IHT through charitable legacies, since the precise way an estate will be charged depends on personal circumstances.”
He explained that many people do not think about writing a Will until later in life but, especially for those with children, it is recommended people do this as soon as possible.
If people do not make a Will then their estate will be distributed according to the rules of intestacy.
Additionally, Britons are urged to make use of all the exemptions that are available to them as it can also reduce their bill.
There are several allowances for gifts which are automatically exempt from IHT.
Every year people can gift £3,000. This allowance can be carried forward one tax year if unused.
People can make unlimited small gifts of £250.
Gifts between spouses or for the maintenance of children, ex-spouses or dependent relatives are also exempt.
Gifts to people getting married are exempt up to £5,000 for someone’s child, £2,500 for your grandchild or great-grandchild, and £1,000 for anyone else.
