This blog post was written by Vaughan Pomeroy, a Five Talents supporter.
Members in Morogoro, Tanzania.
When I received a legacy after the death of my parents, I wanted to give some of it away to support a charity in their memory. This was much easier than I expected thanks to the generosity of the Inheritance Tax regime in the UK.
As strange as it seems, Inheritance Tax rules can make a really generous gift even more attractive and give you a wonderful feeling of really making a difference in memory of a loved one.
HOW IT WORKS
If you are able to give to charity at least 10% of the net value of the estate (that is, after deducting the tax-exempt elements), tax rules allow the rate of tax payable on the remaining net estate to be reduced by 10%.
AN EXAMPLE
It sounds much more complicated than it seems, but here’s an example: If the net estate value was worth £100,000 and was to be taxed at 40%, then the beneficiaries of the estate would expect to receive £60,000. But, if the decision is made to give £10,000 to charity, the tax is immediately reduced by £4,000 because charitable donations are free of tax.
With a gift of £10,000 the remaining £90,000 would only be taxed at 36% - leaving beneficiaries with £57,600. Amazingly, this means the beneficiaries have given £10,000 to charity in honour of their loved one, but it has only cost £2,400 to make the donation.
WHEN TO DECIDE
Not only can you decide to write into your own Will now that you would like 10% of your net estate to be given to a chosen charity, but as an inheritor you can choose to make a donation of 10% of the net estate you inherit after your loved one has passed on. And you don’t need to make this decision whilst dealing with the hectic and distressing period of grief - you can make use of this inheritance tax rule within two years of the date of death.
When sorting out my parents’ estate, and with my brother’s agreement of course, I could enjoy making a real difference by giving over four times what the gift actually cost me. It is an extraordinarily generous provision and not well understood. The joy of giving is certainly amplified when the tax man provides such support.
Enjoy the gift of giving!
If you’d like to learn more about making a will or leaving a legacy for Five Talents please click here. Please note that this is not professional legal or tax advice, do speak with your own solicitor and accountant when making legacy gifts.