The Government has issued a Consultation Paper giving more detail about the Budget proposal to encourage legacies to charity by reducing the rate of inheritance tax (IHT) from 40% to 36% for estates in which at least 10% of the taxable estate is left to charity.

The announcement was generally welcomed as a means to encourage charitable giving. While it would not alter the fact that a legacy to charity will reduce the inheritance received by other beneficiaries, the lower rate of IHT would reduce the loss to them.

The initial announcement contained little detail and while the Consultation Paper fills in many of the missing pieces, it also highlights a number of areas of detail that will need to be resolved before the reduced rate of IHT can be brought into law. Examples are whether it should apply only to assets passing under a Will or also to jointly owned property which passes by survivorship, or to property in trust. The consultation lasts over the summer and we can expect to see details of the final rules later this year.

Should you alter your Will?

It is important to remember that leaving a legacy to charity to take advantage of the incentive will not make your beneficiaries better off than if there was no charitable legacy. The Consultation Paper is clear that the final rules will be carefully drafted to ensure that this cannot happen.

However, the incentive may well affect you if your Will already leaves a legacy to charity, or if you are intending to leave a legacy to charity. In those cases, the amount received by your non-charitable beneficiaries may increase provided the gift is framed so that your estate qualifies for the reduced rate of IHT. Thus, if your Will currently leaves a small legacy to charity, there may be an advantage in increasing the size of the legacy in order to reduce the IHT payable on the assets passing to other beneficiaries. This will depend on the specific facts of each case.

Once the final rules are clear, you may like to ask us to review your Will with you to consider whether any changes need to be made.

Does your Will need review?

A change in tax law is one of the many reasons why an existing Will may need to be reviewed, whether to benefit from the changes or to avoid pitfalls. Another key time when a Will needs review is after a major change in family circumstances – the birth of a child or grandchild for example, or the death or divorce of an important beneficiary. Please say if you would like a copy of our briefing which sets out in more detail the kinds of events that should trigger a review of your Will.