Tax Reforms Incentivises Will Writers To Discuss Legacy Giving

A recent Charity Tax Commission (CTC) report reveals a suite of reforms that will incentivise professional Will writers and increase legacy giving.

One of the proposals made by the CTC was that charitable Wills should be exempt from VAT. This has been welcomed by charity organisations as the recommendation will encourage solicitors to discuss legacy giving with clients when making Wills.

A third party charity consortium, Remember A Charity, said that this reform has been at the “heart of their lobbying activity” in the past few years, and further reinforced and supported by the Institute of Fundraising.

Rob Cope, Director of Remember A Charity, welcomes the report and highlights the importance of incentivising legacy giving for all supporters, saying:

“We know that the current Inheritance Tax breaks are a powerful motivator for professional advisors to raise the option of legacy giving with clients and to encourage people to give, but they are only available to a minority of the public. To normalise legacy giving, we need to create a more level playing field and ensure that legacy giving is not something reserved for the wealthiest in society, but something that we are all encouraged to do.

“Introducing a VAT exemption on charitable Wills would benefit every supporter, encourage legacy giving and ensure that charitable bequests are considered every time somebody writes a Will.

“The key to growing legacy giving is driving consideration and conversation. Fiscal incentives such as our VAT proposal have huge potential to be a powerful lever for change, helping charities and advisors to become louder about legacies.”

Following on from the CTS announcement, the Office of Tax Simplification (OTS) recently recommended to retain the current IHT tax relief – whereby charitable gifts in Wills are currently exempt from IHT (charged at 40%) and those testators who donate over 10% of their estate to charity will benefit from a discounted rate of 36% across the remaining value of their estate.

Rob Cope, Director of Remember A Charity, commented on OTS’ recommendation to keep the current critical tax breaks on legacy giving:

“People leave a legacy because they care about the cause and they want to leave the world a better place. But tax relief is critical. It can be a powerful incentive for supporters (particularly for those whose estates lie close to the IHT threshold) and, most importantly, it gives solicitors a reason to open up conversations about legacies, massively increasing the chances of a charitable donation being made.

“Although gifting 10% or more of the value of an estate to charity is something that applies to a minority of Wills, the fact is that those estates yield the highest proportion of legacy income. If current giving levels continue, over the next five years over 10,000 estates will likely benefit from this reduced rate of tax, generating millions in legacy income.”

Bringing all the proposals together would make legacy giving more straight forward and less challenging, while increasing charities’ income by 100s of millions a year, plus a welcome reduction in pointless admin work. The Commission estimates that the reforms could generate a further 15,000 charitable legacies a year. While Sir Nicholas Montague, chairman of the Independent Charity Tax Commission, who took the lead on the CTS report, said it could raise an extra £72m a year for charities – which could cost the taxpayer less than £1m.

Other recommendations in the CTS’ report included changes to the rules surrounding Gift Aid which is where charities can claim back an extra 25 pence for every £1 a taxpayer gives.

With gifts in Wills contributing the largest single source of voluntary income to the charity sector, generating over £3 billion for good causes each year – CTS’ reforms could motivate charity donations and provide financial stability to charities across the UK who are increasingly reliant on legacy gifts.

Read further on the Charity Tax Commission report here.

As Wills professional, what is your opinion of the Charity Tax Commission’s reforms? Will it help legacy giving for the future?

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