Leaving a Gift to Charity in your WillPublished on: 13 October 2017
After you have taken care of family and friends in your Will you may wish to consider leaving a gift to your favourite charities.
Charitable legacies are vital and often the main source of voluntary income for many UK Charities, which would not survive without gifts in Wills. However, current statistics show that whilst the majority of the UK population support charities during their lifetime, only a very small minority include a gift to charity in their Will.
Details you Should Consider
A donation in a Will can be a fixed amount, an item or a share of the estate. Your professional advisor can prepare a new Will for you or a Codicil (a document used to change a Will already made) to incorporate your wishes to leave a gift to charity.
To assist your professional advisor when giving them instructions, you will need to
The correct charity name and registered charity number: This will enable them to check that it is a registered charity. This could have significant inheritance tax (IHT) consequences. For example, organisations whose aims are considered to be political are denied charitable status.
Branch of the charity you wish to benefit: Are the funds to be used locally? Is it a charity in its own right? What if, on death, that local branch no longer exists?
Is the legacy to be used for any specific purpose?: What if that project has already been completed? The charities themselves are the best to judge the greatest need at the relevant time but the Will could be prepared expressing a wish rather than a binding obligation
Your wishes as to the destination of a legacy if the originally named charity merges or ceases to exist or if the local branch no longer exists: If two charities merge then a gift to either will not necessarily take effect as a gift to the successor charity. It may be better to provide for this in the Will to avoid any application to the Charity Commission for adjudication.
Tax Implications on your Gift to Charity
Income Tax: Charities can reclaim income tax due from income arising during the administration of an estate (apart from tax credit on dividends).
Capital Gains Tax: Charities are not liable to capital gains tax. If assets are sold by executors during the course of the administration of an estate a capital gains tax liability may arise against the executors if the gain exceeds their personal allowance. Charities can generally ask for any assets likely to produce a gain during the administration of an estate to be appropriated to them before disposal so that the exemption applies.
Inheritance Tax: No IHT is payable on assets passing to charities. However, gifts to charities outside of the UK are generally not exempt from IHT except for gifts to organisations in the EU which would qualify for charitable status if they were based in the UK (This will obviously need to be kept under review post-Brexit). It may be possible to leave a legacy to a UK charity with links to the foreign cause which you wish to benefit thereby avoiding paying tax on that gift.
Cutting Your Inheritance Tax Bill: Leaving part or the whole of your estate to charity can reduce and in some cases eliminates IHT liability (currently 40% over £325,000.00 Nil Rate Band Threshold). Anything left to charity in your Will does not count towards the total taxable value of your estate.
You can also cut the IHT Rate on the rest of your estate from 40% to 36% if you leave at least 10% of your net estate to charity.
However, there could be IHT consequences if the residue of an estate is left partly to exempt and partly to non-exempt individuals.
These are matters which your professional advisor can discuss with you and upon which they can advise.