Last month Macmillan Cancer Support's latest accounts were published and show that income from legacies left to the charity in individual’s Wills has risen by more than 20% from £64 million in 2015 to £77 million in 2016. Macmillan are not alone in benefitting from this increase in charitable legacies with many clients now asking for some money to be set a side for their favoured charities when they die.
So how does it work?
How you leave money or assets to charity in your Will is reasonably straightforward. The most common ways to do this is to leave a specific amount of cash, a valuable item or a piece property. Some clients even wish to leave a charity a share of their entire estate (i.e. 20%, 50% or even 100%). The best option for you will depend on your personal circumstances and how your estate is made up.
But are there any benefits for you as well?
In fact, there are, and charitable legacies can be an effective tool to use in estate planning. Firstly, any money that is left to a charity in your Will is exempt from inheritance tax. The value of the legacy is taken away from your estate before inheritance tax is calculated. Also, if you leave a legacy of at least 10% of your estate to charity in your Will, any inheritance tax payable on the rest of your estate would be at the reduced rate of 36% instead of the normal 40%. The 10% of your estate can be made up of a specified amount of cash, an item or from a share of your entire estate. This obviously means there is a potentially significant reduction in your estate’s tax bill but also provides the peace of mind that some of your money is going to a worthwhile cause.
People often donate to charities throughout their life in many ways as well. A lot of these donations make use of the Gift Aid scheme which allows the charity to claim back the tax on your gift. This means that for every £1 you donate, the charity can claim an extra 25p. Not everyone can claim Gift Aid though as you need to have paid enough tax in the current tax year to qualify. Aside from the income tax benefits, any gifts to charities during your lifetime are also exempt from inheritance tax as well, unlike larger gifts to children or friends, and can be helpful when estate planning.
Charitable gifts and legacies can be useful in tax 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 or a smaller local charity, your donation can make a difference. Making these gifts in lifetime or through your Will shall depend on your own preferences and individual circumstances.
If you have any questions about charitable giving or wish to discuss your options for leaving a charitable legacy in your Will, please contact Stuart Mackie on 03330 430150 or by email at firstname.lastname@example.org or contact a member of the Private Client team.