Leaving a bequest to charity is a very personal decision and made for a variety of reasons. The amount to be bequeathed and recipient charity or charities can change over time as a person’s wishes and circumstances change. To encourage charitable legacies, the Budget announced a reduced rate of IHT to apply where a person dies on or after 6 April 2012 if certain conditions are met.
A bequest (or lifetime gift) to charity is exempt from IHT. If part of the estate is left to chargeable beneficiaries such as children, then there can be IHT to pay (depending on the amounts involved), with the part passing to charity being exempt. The reduction in IHT on the estate overall in this situation will apply where 10% or more of the estate (after deduction of IHT exemptions, reliefs and the NRB) is bequeathed to charity. The rate of IHT is 36% (compared to the normal 40% rate). There is to be a consultation on the finer details shortly. How much this will encourage charitable legacies remains to be seen. For those individuals where the tax drives the division of the estate, they will need to weigh up the amount of tax saved as opposed to what remains to be passed to their chargeable beneficiaries.