The tax benefits of giving to charity

Money Advice Service

If you’re worried about the Inheritance Tax that might have to be paid when you die, giving away some of your money to charity – in your will – can reduce the bill. This guide explains how.

Cutting your Inheritance Tax bill

Visit GOV.UK to find more information on which part of your estate pays Inheritance Tax, calculators and relevant forms.

Leaving a part or your entire estate to charity can reduce, and in some situations, eliminate the Inheritance Tax liability.

If you leave something to charity in your will, then it won’t count towards the total taxable value of your estate.

This is called leaving a ‘charitable legacy’.

You can also cut the Inheritance Tax rate on the rest of your estate from 40% to 36%, if you leave at least 10% of your ‘net estate’ to a charity.

To illustrate how this would work, let’s say that when you died:

  • your net estate was worth £425,000
  • in your will, you left it all to your partner who lives with you
  • you have your full Inheritance Tax allowance (currently £325,000 for the 2019/20 tax year)
  • you weren’t married or in a civil partnership (so the spouse exemption is not available)
  • thus, the ‘net estate’ is £100,000 (i.e. £425,000 minus £325,000). And there is Inheritance Tax to pay on £100,000 at a rate of 40%
  • so, your estate’s would have to pay a tax bill of £40,000 (i.e. 40% of £100,000).

But if you wanted to reduce the tax bill by making a charitable gift:

  • you’d leave your partner £415,000, and
  • £10,000 to charity in your will (which is 10% of your ‘net value’ of £100,000)
  • the estate would then pay 36% on £90,000 worth of assets instead. This means that your estate would pay £32,400 in Inheritance Tax.

While this would mean your partner receives less when you die, in this example making a charitable legacy would shave off £7,600 from the Inheritance Tax bill.

This is worth considering if you’re keen to support a charity even after your death.

The rules on how to work out what you can give away to charity to secure the lower tax rate aren’t always as straightforward as our simple illustration above.

So, it’s a good idea to get the advice of a solicitor or accountant who specialises in estate planning.

Learn more about cutting your Inheritance Tax bill in Gifts and exemptions from Inheritance Tax.

This article is provided by the Money Advice Service.

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Some important information about Rest Less Money

We want you to understand the positives, but also the limitations of using our site. We operate in a journalistic manner and therefore all information, guidance or suggestions provided are intended to be general in nature, and you should not rely on any of the information on the site in connection with the making of any financial decision.

When we set out to build Rest Less Money, we wanted to be a trusted place where you could find helpful information about financial matters affecting the over 50s. As a free to use resource, we try hard to provide the best information we can, but we cannot guarantee that we won’t occasionally make mistakes. So please note that you use the information on our site at your own risk, and we can’t accept liability if things go wrong.

Key things to remember when using Rest Less Money:

We do not offer financial advice – As a journalistic site, it’s important to know that we do not provide financial advice. You should always do your own research before choosing any financial product so that you can be certain it is right for you and your specific circumstances. If you are in any doubt, please seek professional financial advice from a regulated financial advisor.

No Liability – please note that you use the information on Rest Less Money at your own risk and we can’t accept liability for how you choose to use the information given on our site. We will often provide links to content or products and services available on other third-party websites. These are provided purely for your convenience and we cannot be held responsible for any content, or any of the products and services offered on any website that we link to.

 

Accuracy of Information – We try to make sure that all the information provided on Rest Less Money is correct at the time of publishing as we want it to be the most helpful resource possible. Sadly, we are not perfect however, and so we can make no guarantees as to the completeness, accuracy, adequacy or suitability of the information available on the site.
Whilst we work hard to try and provide accurate information, deals and prices can change, so whilst they may be correct at the time of writing, providers may subsequently decide to alter them later – so always double check first.

A final note on the Rest Less Community Forums – always remember that anyone can post their opinion on the Rest Less Community Forums, so it can be very different from our own opinion and may not be factual or well researched. Always be wary of any content posted on the forums and be sure to do your own research and due diligence on anything suggested. 

We hope you find Rest Less Money a useful resource and we would welcome your feedback at [email protected] on how to make it even better. For more information on any of the above you can read our full terms and conditions.

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