As death duties in recent years have increased, one million people have made gifts to charities in their wills over the past decade to reduce the amount they need to pay in inheritance tax, according to an article in the Daily Telegraph.
The article says more people than ever have taken advantage of such donations being tax-free, with an average 100,000 posthumous gifts on average a year, according to the firm Smee and Ford, which notifies charities of legacies left to them.
Last year, gifts in will totalled some £3 billion alone, the firm says. In the past 20 years, bequests left to good causes have risen by a third. The biggest increase in donations over that period had been to medical welfare and research charities, rescue services, hospices, and sports and recreational organisations.
Fully exempt from inheritance tax
Charity donations are fully exempt from inheritance tax that is applied at the rate of 40 percent to all estates that are valued at £325,000 and above. If a person leaves one-tenth of their estate to charities after they die, this also brings extra tax relief into effect, reducing the rate at which an of the outstanding tax is charged to 36 percent.
Talking to the Telegraph, Rob Cope of the organisation Remember a Charity said gifts in wills made considerable differences to charities, enabling them to carry out their work and saving the tax burden on estates. He added that this was especially important at this time because of the boom in house prices, which had inflated estate values, and that more and more people were facing “hefty tax bills” because of the Chancellor’s freeze on tax protections.
The five-year freeze on tax breaks announced at the March budget will see thousands more families paying out in the coming years. Thanks to increased deaths because of the coronavirus pandemic and the huge boom in house prices, the government is expected to bring in an extra £1 billion over that time, with the overall tax revenue total reaching a high of £6 billion by the end of the tax year 2021-22, up from £5.4 billion in 2020-21.
Family home allowance
The allowance for inheritance tax has not risen since 2009, despite inflation and house price growth. It will stay at its present level until at least 2026. The family home allowance of an additional £175,000, which helps protect individuals who want to pass on their main home to a direct descendant has also been frozen.
There are other tax-free ways people can use to pass on their inheritance, such as tax-free gifts so long as you do not die within seven years of making that gift, as otherwise it counts towards your estate. Unlimited small gifts of up to £250 are permitted, but this allowance cannot be used if the beneficiary has already received one of the larger allowances.
Individuals can also give away up to £3,000 worth of tax-free gifts each year and the allowance can be rolled over into the following tax year if it was not used, but only for one year. Parents are allowed to gift £3,000 to their children as a wedding present, as well as £2,500 for grandchildren and great-grandchildren for the same reason.
This article is not intended as tax advice. Please consult an estate planning professional for advice relevant to you.
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