In 2018, over ten thousand charities were named in UK wills, amounting to over £3 billion of charitable donations.
During the first five months of this year, the Charities Aid Foundation (CAF) confirms that 41% of us saw a decrease in our disposable income. While this has meant the demand for charitable donations has increased, the level of donations has dropped.
A charitable legacy is a great way to support a charity that means a lot to you. Not only does it feel good to support a charitable cause, but there are tax incentives too.
If you’re thinking of writing or updating your will to include a charitable donation, get in touch with us, or speak to our new partners, Penrose Wills.
The benefits of leaving a charitable legacy
- Donated funds fall outside of your estate
When you gift money to charity it no longer counts as part of your estate for Inheritance Tax (IHT) calculation purposes.
The IHT threshold for the 2020/21 tax year is £325,000. You can leave an estate valued at up to this amount – plus the ‘main residence’ band of £175,000, giving an individual allowance of £500,000.
Any amount over this threshold will be liable for tax at 40%.
By donating a part of your estate to charity you could lower your IHT liability and decrease the amount of money paid in tax on your death.
- Charitable donations can reduce your overall rate of IHT
Not only will charitable giving reduce your IHT liability, but it can also lower the rate of IHT you pay.
When you donate 10% or more of your estate’s net value to charity, your rate of IHT will usually reduce from 40% to 36%.
Try this Inheritance Tax reduced rate calculator to see if your proposed charitable donation will be sufficient to reduce your IHT rate. Alternatively, speak to us.
- To give to a cause that is important to you
The biggest benefit of leaving a donation to a charity will be felt by the charity itself. If the charity is close to your heart, it will mean a lot to you too.
Your donation could make a real difference to your chosen charity, especially at a time when the sector is struggling.
CAF data confirms over half (53%) of charities surveyed believed donations had decreased since the start of the coronavirus pandemic. 31% strongly believed that this was the case.
Source: Charities Aid Foundation
In the 2018/19 tax year, charities that benefited from large legacy donations included Cancer Research UK (£188.6 million), the RNLI (£135.1 million), Macmillan Cancer Support (£84.5 million), British Heart Foundation (£83.4 million), RSPCA (£77 million).
The Telegraph reported last year that ‘a third of Cancer Research UK’s work… and 50% of the British Heart Foundation’s voluntary income is from gifts and wills.’
How do I leave a charitable legacy?
If you want to leave a charitable legacy, it must be clearly stated in your will. If you don’t have a will or you would like to update an existing one to include a charitable donation, speak to us.
There are four main ways to leave a charitable donation in your will:
- Residuary legacy
With a residuary legacy, the amount you leave to charity is the residual value (or a share of the residual value) of your estate, once all other bequests to family and friends have been made and any other costs, taxes, and expenses have been covered.
- Pecuniary legacy
A pecuniary legacy is probably the easiest way to donate to charity in your will. You specify the amount of money you want to gift to your chosen charity, and they receive that amount when you die.
- Specific legacy
A specific legacy means gifting a particular item to your chosen charity. This could be stocks and shares, a Life Insurance payout, or physical items such as land, property, jewellery or furniture. The specific item must be named in your will.
- Contingent legacy
A contingent legacy means leaving a charitable donation only if another event does or doesn’t occur, prior to the gift being made. For example, the death of one of your chosen beneficiaries might mean their portion of your estate is gifted to your chosen charity instead.
The need for advice
Wills can be complex, but it is crucial that they are completed correctly and that the information within them exactly aligns with your wishes.
Mistakes can prove costly if they need to be rectified and if they are not spotted they could result in your wishes not being carried out.
Contact us and we can discuss your financial plans. We can help you decide how much you’d like to leave to charity and the tax implications of doing so.
When you’re ready to write your will – or amend an existing one to incorporate your charitable donation – speak to us and we can put you in contact with Kimberley Leigh, Consultant Solicitor at our will-writing partners, Penrose Wills.
Get in touch
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.