Making charitable bequests in Wills

Many people make bequests to charities in Wills, partly because it can be highly tax efficient but to make best use of these incentives there are a few things to watch out for.

Gifts fall outside of your estate for the purposes of calculating Inheritance Tax (IHT) providing they are registered charities so, make sure the beneficiary is registered and include the registration number in your bequest.

if you donate more than 10% of your total estate to charities the rate of IHT is reduced to 36% from 40%. This produces a highly attractive incentive: in effect you receive 76% tax saving on the amount of donation takes you up to 10% of your estate (see below for calculations).

Do not restrict the gift to a specific project within a charity’s programmes. We believe this is an unhelpful approach with most donations but even more so when it comes to making decisions about donations that will lie an unpredictable period in the future.

For similar reasons, pay more than usual attention to the financial stability of the charity – it’s important for it still to be in existence!

Forewarn the charity of your intentions. In this way you can at least receive information during your lifetime of the good work they are doing.

Assume a taxable estate of £1m (excluding personal residence). With no charitable giving the IHT payable is £400,000, leaving £600,000. If £100,000 is donated to registered charities then 36% IHT is chargeable on the reduced estate of £900,000, leaving £576,000 for beneficiaries.