According to Legacy Foresight, over £3 billion was donated to charity in the wills of UK residents during 2019. This means that around 3.5% of all the money left in estates was going to charity.
The company’s most recent report now forecasts a possible fall of between 3% and 9% in 2020 as a result of the coronavirus pandemic. It does though predict the continued growth of legacy income on average, over the next five years.
So, what is a charitable legacy, and should you leave one?
What is a charitable legacy?
Leaving money to charity in your will is known as a legacy gift or a charitable legacy.
It’s a great way to gift money to a cause close to your heart and it can be tax-efficient too.
Not only does the gifted amount not count towards the value of your estate for Inheritance Tax (IHT) purposes, but, as we will see later, you might also be able to cut the IHT rate you pay on the remainder of your estate too.
How do I leave a charitable legacy?
A charitable legacy must be stated in your will so if you don’t have one, or it is not up to date, be sure to update it now to include your charitable donation.
You should also speak to a solicitor when making changes to your will and we can help point you in the direction of trusted professionals who can help with this.
There are three main options to consider when leaving a charitable donation in your will:
- Residuary legacy
A residuary legacy is when you leave the whole of your estate or a percentage of your estate, once all other bequests have been made and any other costs and debts covered.
- Pecuniary legacy
A pecuniary legacy is a gift of a specified sum of money to your chosen charity. This is probably the simplest and most common way of donating to charity in a will.
- Specific legacy
A specific legacy is a gift of a particular item to your chosen charity. Again, the item must be specified in your will.
Mistakes in a will can prove costly if they need to be rectified. They could also mean your wishes aren’t carried out.
Always consider using a solicitor and get in touch with us first if you’d like to discuss any aspect of leaving a donation to charity in your will. We can talk you through the tax implications and help to ensure you make the right choice for you and your loved ones, as well as for your chosen charity.
Why leave a charitable legacy?
- To benefit a cause that means a lot to you
Rob Cope, director of Remember A Charity, recently told the Telegraph that “a third of Cancer Research UK’s work is funded by gifts and wills.” He added, “Nearly two out of every three guide dogs are funded by legacies, and 50% of the British Heart Foundation’s voluntary income is from gifts and wills.”
Giving money to a charity that has meant something to you during your lifetime gives you the chance to have a real and lasting impact, both on the work that your chosen charity can do and on the lives of those the charity helps, long after you’re gone.
- To lower the taxable value of your estate
Money gifted to charity does not count as part of your estate for Inheritance Tax (IHT) purposes. That means that by gifting money to a favourite charity, you’ll also be decreasing the amount of IHT due on your estate.
For the 2020/21 tax year, you can leave an estate valued at up to £325,000, plus the new ‘main residence’ band of £175,000, giving a total allowance per person of £500,000, without becoming liable for IHT.
If your estate is over this amount, however, it will be liable for tax at 40% on anything over the £325,000 threshold, excluding the ‘main residence’ allowance. Gifting money to charity can reduce any liability and lower the amount to pay.
- To reduce the rate of IHT payable
What’s more, if you donate more than 10% of your estate’s net value to charity, the rate of IHT could reduce from 40% to 36%.
It’s possible to calculate whether the reduced rate will apply. If you’re preparing a will and wondering if your proposed charitable donation will be sufficient to lower your IHT rate, try this Inheritance Tax reduced rate calculator.
Get in touch
Leaving money to charity in your will can be a great way to provide financial help to a cause you care about. It can also help you cut down on your IHT liability.
If you’d like to discuss any aspect of your estate, or of leaving a charitable legacy in your will, please get in touch. Please email info@investmentsense.co.uk or call 0115 933 8433.
Please note:
The Financial Conduct Authority does not regulate Will Writing or Power of Attorney arrangements.
