Yes – you can help your family and Kol Chai in your Will
Leave 10% of your estate to charity and you could save inheritance tax on the gift and the balance of your estate.
At the recent EGM, we announced we would be launching a fundraising campaign to help pay for the building works. A question was raised about legacies and it seemed not to be generally known how beneficial a gift to charity can be in a Will, but at minimal cost to your estate and the family you are leaving the estate to.
Why? Well, if you make gifts to charities in your Will of at least 10% of the value of your net estate, not only will the gifts to charities be exempt from inheritance tax (IHT) but you will also only pay 36% instead of 40% on the rest of your chargeable estate.
The simplest way to achieve this is by making a provision in your Will that 10% of your estate is to pass to a charity or charities, rather than specifying a monetary amount, because a fixed monetary amount may not satisfy the 10% rule.
A worked example might help. A couple with 3 children make wills that leave their assets to each other and then, after both have died, to their children. Let’s say that their net taxable estate (i.e. after the Inheritance tax free amounts) is £1 million – not that hard nowadays with the value of housing. On the second death, that £1 m will suffer tax of £400,000 (40%). This means the children all get £200,000 each of the taxable estate.
However, if on the 2nd death 10% is left to charity (Kol Chai?), then the charity gets £100,000. The estate is then taxed at 36% on the balance of £900,000, so the tax paid is £324,000. This means the children each get £192,000. So each of the children only get £8,000 less, and Kol Chai (or any other charity) gets £100,000.
Yes, this is complex and you need to instruct a specialist lawyer or accountant to advise on your particular circumstances – but it is more than worth it.
However, you don’t have to wait till you die to get benefits from giving to charity.
If you make gifts to charity during your lifetime, you will not only benefit from exempting such gifts from IHT but also be able to claim income tax relief through the Gift Aid rules.
If you have assets which would give rise to a capital gain if sold, you can gift these assets to charity and benefit from IHT relief, income tax relief and also capital gains tax relief!
So, do consider Kol Chai when thinking about all of the above.
Pete Martin & Paul Decker