This article outlines how to leave funds to charity in your Will and the associated Inheritance Tax benefit. It also considers the potential problems that could arise if you make a charitable gift in your Will and how these can be avoided.
The Charities Aid Foundation has reported that in the UK between January and June 2020 the public donated £5.4 billion to charity. Despite the UK public’s generosity in terms of charitable giving, a Law Society survey undertaken in June 2020 has shown that relatively few leave charitable gifts in their Wills. Over 1,000 individuals were questioned as part of the Law Society survey and of those individuals:-
- 59% said that they did not have a Will
- Only 29% said that they have an up-to-date Will which reflects their current wishes; and
- Of those individuals who had made a Will, only 20% had included a charity as a beneficiary in their Will.
Whilst many individuals donate funds to a number of charities during their life, some do not realise that their Will is a further opportunity to leave a positive legacy and support a charitable cause that they are passionate about should they wish. Many also do not know that leaving funds to charity in their Will can reduce the taxable value of their estate therefore reducing the Inheritance Tax payable upon their death.
How can I leave money to a charity in my Will?
There are a number of different ways in which you can make a charitable gift in your Will:-
- A pecuniary legacy – you can leave a fixed sum of money for example £500;
- A specific legacy – you can stipulate that a specific item such as an item of jewellery is gifted; or
- A residual legacy - you can give a portion or the entirety of your residuary estate to charity. This means that the charity will receive the funds that are left in your estate (or a portion of the funds that are left in your estate) after any specific gifts, debts, funeral expenses and inheritance tax are paid.
When including a charitable gift in your Will it is essential to include accurate and relevant information in relation to the charity including the charity’s name, the registered charity number and a clause to deal with what happens if the charity ceases to exist or merges with another organisation. Recent case law has shown the importance of full and accurate charity information being included in Wills. If full and accurate charity information is not included unnecessary legal costs can be incurred dealing with complications and charities may miss out on legacies that were meant for them.
Is there tax relief if I leave a charitable gift in my Will?
Yes – leaving charitable gifts in your Will can eliminate or reduce the Inheritance Tax payable in your estate.
Inheritance Tax may be payable on an estate (including property, money and personal belongings) when someone dies if the value is over the taxable threshold(s). If the estate value is above the taxable threshold(s) Inheritance Tax is charged at 40%. There are a number of exceptions to this; for example, if you leave everything (or everything above the threshold) to your spouse or civil partner, there will normally not be any Inheritance Tax to pay.
If you make a charitable gift (or various charitable gifts) in your Will, there is tax relief; those charitable gifts are Inheritance Tax free.
Further, if 10% or more than 10% of your estate is left to charity, the rate of Inheritance Tax applicable to your entire estate can be reduced from 40% to 36%. In many estates, this reduction can result in a considerably smaller Inheritance Tax bill upon death.
Could my family challenge my decision to leave a charitable gift in my Will?
Yes – in certain limited circumstances family members can challenge the distribution of an estate.
It has long been a principle in English law that we have “testamentary freedom;” we are broadly able to leave our property to whoever we wish whether this be to family, friends, charity or otherwise. There are, however, various ways in which a Will can be challenged after death irrespective of our testamentary freedom.
The Inheritance (Provision for Family and Dependents) Act 1975 allows particular individuals, such as a spouse, civil partner or child of the deceased, to make a claim against an estate for reasonable financial provisional in certain limited circumstances.
It is also possible for a Will to be challenged if there is doubt as to a testator’s testamentary capacity at the time of writing the Will. If such doubt is successfully proven then a gift to charity, or the entire Will, could be declared invalid.
Can any other problems arise?
Yes – there are a number of issues that can arise when an Executor is administering an estate such as:-
- Your financial situation could alter between the time of writing your Will and the time of your death. For many this scenario is likely given the high cost of care and/or nursing fees. In such circumstances, if you have left a large amount of pecuniary legacies in your Will then your Executor(s) may not be able to fulfil the pecuniary legacies under your Will; or
- If you leave a specific gift, such as a gift of your property or an item of jewellery, but if you no longer own the particular asset when you die then the gift will fail to take effect. This could result in your proposed beneficiary (such as a charity) receiving nothing from your estate contrary to your wishes.
The best protection against issues like this arising is to obtain professional advice and have a solicitor draft your Will for you. The experienced solicitors in Girlings’ Private Client department can structure your Will so to, as far as possible, allow for changes in your circumstances without you needing to continually amend your Will.
If you are considering making or changing your Will, whether you wish to make a gift to charity or not, Girlings’ Wills, Tax & Estates department can draft a Will for you whilst also advising you on tax-efficient gifts and getting the most out of your estate.