Setting up a Will allows each of us to establish what will happen to our Estate when we die. For many there’s a need to ensure family and friends are well provided for, and that certain plans are in place. But more and more people are now keen to leave a legacy for their preferred charity too. Steve Wright, our Estates Director, looks at the growing popularity of leaving a charitable gift.
Leaving a charitable legacy in a Will has been a popular practice for some time, not least because it’s a good way of helping reduce Inheritance Tax (IHT). Any gift to a charity is free of IHT so, as well as offering a great way to support a cause which you feel strongly about, it’s also a useful tax planning tool.
Last year more charitable gifts were left in Wills than ever before. According to Smee & Ford, who manage legacy information for UK charities, almost 16% of Wills processed in 2022 included a donation to a charity, with the total value of charitable Estates at an enormous £21.3 billion, the highest ever recorded. The number of those leaving a legacy also rose to a new high with 123,298 people using this option.
The level of gifts was also notable too, with 31% exceeding £500,000. Over half of all legacies left were worth more than £100,000.
It seems likely that this area of Estate planning is only set to grow, with recent research suggesting 40% of those in the UK would be happy to leave a charitable gift in their Will, but only 6% currently do.
You can see the attraction. Furthermore, if 10% or more of your Estate is gifted to charity, not only is the charitable gift free of IHT, but the remainder of your Estate will also be subject to IHT at the rate of 36% rather than 40%. In practice, this can create a way to pass more on to your preferred charity, without negatively affecting the amount your heirs receive.
Here’s an example on how this could work in practice, based on an estate worth £1 million:
| 4% charitable legacy | 10% charitable legacy | |
| Estate value | £1,000,000 | £1,000,000 |
| Nil-rate band | £325,000 | £325,000 |
| Amount passing to charity | £27,000 | £67,500 |
| Inheritance Tax bill | £259,200 | £218,700 |
| Final payments to beneficiaries | £713,800 | £713,800 |
If you are considering a charitable gift, our recent article explaining how to leave money to a charity may help. Or to discuss your plans with one of our Estates team please contact your nearest office.
