Reducing Inheritance Tax (that would otherwise be paid when you die) can be done by leaving a gift in your Will to St Richard’s Hospice.
Inheritance Tax can be a significant burden for some families and can cause a lot of stress for family members in what is an already upsetting time, after the loss of a loved one.
Therefore, inheritance tax planning and mitigation can help ease this burden on your family members. One method of doing this is by leaving a portion of your estate to a charity, like St Richard’s Hospice, in your will.
If you do so, it will not count towards the total taxable value of your estate. This is called leaving a ‘charitable legacy’. The standard rate of Inheritance Tax is 40% above any allowances that are applicable to you.
You can also reduce 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 £500,000.
- You have your full Inheritance Tax free allowance which is currently £325,000 for the 2024/2025 tax year. This is known as the ‘nil rate band’ i.e. if your estate is worth this amount or less there is no Inheritance Tax to pay.
- You were not married or in a civil partnership (i.e. there is no spousal exemption)
- Thus, the ‘net estate’ is £175,000 (i.e., £500,000 minus £325,000 of exemptions) so there is an Inheritance Tax to pay on £175,000 at a rate of 40%
- So, your estate would have to pay a tax bill of £70,000 (i.e., 40% of £175,000).
But if you wanted to qualify for the 10% reduction and reduce the tax bill by making a charitable gift:
- You would remove your allowances first, leaving the ‘net estate’ of £175,000. Then if you left 10% of this to St Richard’s Hospice i.e. £17,500 you would benefit from a reduced rate of inheritance tax of 36%.
- Therefore, the Inheritance tax due would be 36% of £157,500 (the net estate value minus the charitable legacy) so £56,700.
In this example, making this charitable legacy would reduce the Inheritance Tax bill by £13,300 and ensure a generous gift to your preferred charity. This is therefore worth considering if you are keen to support a charity, such as St Richard’s Hospice after your death.
It is worth noting that there are further exemptions available such as the residential nil rate band, spousal exemptions, and potentially exempt transfers. Each individual case can be extremely complicated and therefore professional advice should be sought before making any decisions on charitable legacies.
If you are seeking advice and would like to discuss such financial planning needs, advisors such as EVA Capital Management would be more than happy to assist. Please email at or call 01905 21763.