There are several benefits to making a bequest in your will to charity. Not only is it a great way to leave a long-lasting impact on the causes that you care about - but there are tax benefits too.
Read more to find out how to save the people you love money, whilst also contributing to great charitable causes.
If you're yet to make a will, our online will service is a great place to start.
The short answer is no.
When you die the people you leave behind usually have to pay inheritance tax on your estate. Your estate is everything you own i.e any money, property, and items.
Whether you have to pay inheritance tax, and the amount you have to pay depends on a few factors - such as the value of your estate, who you're leaving your money to and your legal relationship with them.
But in the UK, any gifts that are made to a UK-based registered charity are always exempt from inheritance tax. (Gifts to charities outside of the UK are more complicated.)
There is no limit to the amount you can bequeath to charity in a will, or the number of charities you chose to leave a gift in a will to - as long as you’ve made provisions for anyone who is financially dependent on you.
Not only is any money bequeathed to a charity untaxable - but it can also help reduce the amount of inheritance tax you pay on the rest of your estate.
There are 5 simple ways you can reduce your inheritance tax legally: 1. Write a will: It sounds basic but this is one of the biggest ways you can make life easier for the people you leave behind. Laying out your wishes in a legally binding document stops your estate from being divided according to the laws of intestacy - this can leave you with an inheritance tax that you don't want or need.
It doesn't need to be expensive or complicated either. Finish your will in less than 15 minutes today.
2. Give away your assets: You can give away £3,000 per year and you won't be taxed on it - as long as you don't die in the next 7 years.
Giving away your assets can also help you stay under the inheritance tax threshold.
For example: In the tax year 2021/22 (until 2026) the inheritance tax nil-rate band is £325,000. Or if you die before your spouse or civil partner then the inheritance tax nil-rate band is £650,000. You can find out more about other thresholds on the government website.
N.B A inheritance tax nil-rate band is the amount up to which an estate has no inheritance tax to pay.
3. Put your assets into a trust: Placing assets under a trust means that they aren't considered part of your taxable estate when you die.
4. Take out Life Insurance: The lump-sum payout that you get from a Life Insurance policy isn't taxable. Get a free quote today.
5. Leave a gift in your will to charity: There is no inheritance tax on anything that you give to a UK registered charity.
Now you can do this all online, in less than 15 minutes. Start your will for free today.
If you give at least 10% of your taxable estate to charity, the inheritance tax rate for the rest of your estate falls from 40% to 36%, saving money on the final tax bill.
To illustrate how it would work, we can look at the examples below:
Let’s say that when you die, the net worth of your estate is £500,000. For the 2019/20 tax year, the first £325,000 is free from inheritance tax, with the remaining amount then being taxed at the standard rate of 40%.
Your ‘net’ estate would be £175,000 (£500,000 mins £325,000) which would be taxed at 40% - leaving a tax bill of £70,000 (40% of £175,000) to be paid. In this example, your beneficiaries would receive £430,000 (£325,000 plus £105,000).
But - you could reduce the tax bill by making a 10% charitable gift as part of your will.
In this case, you would leave 10% of your ‘net’ value to charity, so £17,500 (10% of £175,000). The estate would then pay 36% on the remaining £157,500 total of assets, leaving a tax bill of £56,700 - so making a saving of £13,300 on your inheritance tax bill. In this case, your beneficiaries would receive £425,800 (£325,000 plus £100,800).
Whilst this means that your beneficiaries would receive slightly less, by donating to charity you could;
It's important to remember that whilst you can specify how a charity should use your gift, it's still best to discuss your wishes with the charity before finalising your will - rather than simply leaving instructions as part of your wishes.