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Complex rules around gifting part of your estate to charity could leave an unexpected tax bill

Document – Tax of gifts and other transports of value

In 2022, almost 37,000 estates included a gift to charity (according to legacy information provider Smee & Ford). Gifting to charity is a well known strategy for minimising an IHT bill, but recent case law shows the importance of getting your will professionally drawn up to ensure there are no nasty surprises for your loved ones.

You may recently have read about Caroline Burke who thought that a will left by her aunt left money equally between charities and other beneficiaries. Unfortunately the will had been drafted without stating who should pay the inheritance tax. Silence on this point meant that the beneficiaries did not inherit equally but instead the inheritance tax came out of the shares which did not include the charities, meaning the charities received more than the others.

Gifts to charities are exempt from inheritance tax so when an estate is divided equally between charities and non-charities, the inheritance tax comes out of the shares for the non-charities, unless the will specifically states otherwise.

Many people leave money to charity and it is a nice way of doing good whilst also reducing the tax payable. However, without careful consideration it could end up with the charities receiving more than intended. That is not to say don’t leave to charity, in fact in some circumstances not only is the gift to charity inheritance tax free, but leaving some of your estate to charity can result in the tax on the rest of your estate being reduced from 40% to 36%.

If you are considering leaving money to charity in your will, it is important take legal advice. Trethowans can help with this, please call us on 0800 2800 421 or get in touch here.

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