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Charitable Giving and Estate Planning – A win-win?

Estate planning

On an annual basis, many large UK based charities publish their accounts which show that legacies left from individual’s Wills make up a significant proportion of their overall annual income.

With the significant income this provides to charities, it is not a surprise to see many advertising campaigns asking individuals to consider leaving them a legacy in their Will.

What most of these campaigns fail to mention though is that these donations often come with significant tax benefits for the donor as well, whether donations are made in lifetime or on death.

So how does it work?

Charitable giving can be an effective tool to use in estate planning. Any cash or assets that are donated to a charity during your lifetime or on your death are exempt from Inheritance Tax (IHT).

In the most basic form, leaving cash or assets to a charity in your Will is reasonably straightforward. The most common way to do this is to leave a specific amount of cash, a valuable item or property/land. Some individuals will go further though and leave a share of their entire estate (i.e. 20%, 50% or even 100%) to charity instead.

Where an individual wishes to make significant gifts to a number of charities with similar purposes, it is often worthwhile considering creating their own Charitable Trust during their lifetime. They can also then leave a donation in their Will to their own Charitable Trust, topping up any funds that were donated during their lifetime.

What are the tax benefits?

Where an individual wishes to see a charity benefit during their lifetime, they can make donations (usually in cash) as lifetime gifts instead of leaving them in their Will. These gifts are completely exempt from IHT and do fall into the ‘7 year’ gifting rules (like gifts to family members or friends would).

Similarly, the value of any donation to a charity through your Will is free of IHT as well. If you leave a share of at least 10% of your estate to charity in your Will, as well as that 10% being free of IHT, any IHT payable on the rest of your estate will also be at the reduced rate of 36% (instead of 40%).

As noted above, where an individual wishes to make significant gifts to a number of charities with similar purposes, it is often worthwhile considering creating their own Charitable Trust to manage these donations during their lifetime. The benefit of this is that, after charitable status is granted to the Trust, any donations to the Trust during the individual’s lifetime are exempt from IHT. They can then leave a donation in their Wil to their own Charitable Trust as well, topping up any funds, which again would be exempt from IHT on their death.

A win-win?

Charitable donations can be useful in estate planning but they also allow you to benefit a particular cause or campaign that is close to your heart. Whether it is large multi-national charity or a smaller local one, your donation will make a difference.

The best option for you will depend on your personal circumstances and the asset breakdown within your estate. If you wish your estate to benefit from certain tax benefits as a result of charitable bequests, consideration should be given as to the best way to structure any donations.

If you would like to discuss charitable giving, or you are in need of advice on succession planning, please contact a member of our Private Client team on 03330 430150.

About the author

Chris Gardiner
Chris Gardiner

Chris Gardiner


Wills, Trusts & Succession

For more information, contact Chris Gardiner or any member of the Wills, Trusts & Succession team on +44 1382 279065.