What are the Government's new proposals?

The government is intending to reduce the rate of Inheritance Tax ("IHT") payable from 40% to 36% where 10% or more of the residuary estate is left to charity.

My Wife and I have a total estate of approximately £500,000 can we benefit from the proposed lower rate of IHT if we leave 10% of our estate to charity?

With proper planning your estates ought not to be subject to IHT. Currently, the IHT nil rate band allowance is £325,000 per person. Married couples and civil partners have the ability to transfer their allowances to each other in a variety or ways, including through the use of trusts for estate planning. Therefore, correct IHT planning means that married couples or civil partners should be able to leave an estate of up to £650,000 tax free. Where a spouse or civil partner has been previously widowed it is extremely important that advice is sought as more than one transferable nil rate band allowance may be available.

How does it work?

Unfortunately we are not yet sure. The Government has yet to publish its detailed plans. So far, the Government has indicated that the reduced rate will apply where 10 per cent or more of a deceased’s net estate (after deducting IHT exemptions, reliefs and the nil rate band) is left to charity. The devil is, as ever, in the detail and the Government will be consulting on the proposed changes before the summer.

When do the changes take effect?

The reduced rate of tax will only apply where death occurs on or after 6th April 2012.

Is this a tax cut?

Yes and no. The changes are designed to persuade people to leave money to charity in their Wills. The changes are not designed to help non-charity beneficiaries. Whilst you may reduce the rate of tax payable by your estate you are also reducing the amount you are giving to friends and family by making charitable donations.

If you are already leaving part of your estate to charity then your estate may be able to benefit, provided, of course, you survive until 6th April 2012.

Should I change my Will?

If you have not reviewed your Will in the past five years then this is an excellent opportunity to do so. Anyone who made their will prior to 2006 should review their arrangements as IHT legislation has changed considerably since then.

The changes are unlikely to affect those with estates of less than £325,000 or £650,000 for mWhat are the Government's new proposals?

The government is intending to reduce the rate of Inheritance Tax ("IHT") payable from 40% to 36% where 10% or more of the residuary estate is left to charity.

My Wife and I have a total estate of approximately £500,000 can we benefit from the proposed lower rate of IHT if we leave 10% of our estate to charity?

With proper planning your estates ought not to be subject to IHT. Currently, the IHT nil rate band allowance is £325,000 per person. Married couples and civil partners have the ability to transfer their allowances to each other in a variety or ways, including through the use of trusts for estate planning. Therefore, correct IHT planning means that married couples or civil partners should be able to leave an estate of up to £650,000 tax free. Where a spouse or civil partner has been previously widowed it is extremely important that advice is sought as more than one transferable nil rate band allowance may be available.

How does it work?

Unfortunately we are not yet sure. The Government has yet to publish its detailed plans. So far, the Government has indicated that the reduced rate will apply where 10 per cent or more of a deceased’s net estate (after deducting IHT exemptions, reliefs and the nil rate band) is left to charity. The devil is, as ever, in the detail and the Government will be consulting on the proposed changes before the summer.

When do the changes take effect?

The reduced rate of tax will only apply where death occurs on or after 6th April 2012.

Is this a tax cut?

Yes and no. The changes are designed to persuade people to leave money to charity in their Wills. The changes are not designed to help non-charity beneficiaries. Whilst you may reduce the rate of tax payable by your estate you are also reducing the amount you are giving to friends and family by making charitable donations.

If you are already leaving part of your estate to charity then your estate may be able to benefit, provided, of course, you survive until 6th April 2012.

Should I change my Will?

If you have not reviewed your Will in the past five years then this is an excellent opportunity to do so. Anyone who made their will prior to 2006 should review their arrangements as IHT legislation has changed considerably since then.

The changes are unlikely to affect those with estates of less than £325,000 or £650,000 for married couples and civil partners.

The Government's plans will become clearer over the next few months so anyone intending to alter their will specifically to take advantage of the changes would be advised to wait until draft legislation has been published.

Anyone with a potentially taxable estate, leaving part of the residue to charity and part to beneficiaries who are subject to IHT, is strongly advised to take professional advice as the law in this area is full of complexity. A poorly drafted Will can easily lead to a dispute and litigation between the charitable and non-charitable beneficiaries.

How about the nil rate band allowance? Is this likely to increase in the future?

The IHT nil rate band allowance is frozen until April 2015. However, the Government has announced that from 2015-16 onwards the consumer prices index ("CPI") will be used to increase the IHT nil rate band allowance. What is not clear is whether this means that the nil rate band allowance will rise in line with the CPI each year, or whether the Government will make a decision each year about whether it should rise by this amount. arried couples and civil partners.

The Government's plans will become clearer over the next few months so anyone intending to alter their will specifically to take advantage of the changes would be advised to wait until draft legislation has been published.

Anyone with a potentially taxable estate, leaving part of the residue to charity and part to beneficiaries who are subject to IHT, is strongly advised to take professional advice as the law in this area is full of complexity. A poorly drafted Will can easily lead to a dispute and litigation between the charitable and non-charitable beneficiaries.

How about the nil rate band allowance? Is this likely to increase in the future?

The IHT nil rate band allowance is frozen until April 2015. However, the Government has announced that from 2015-16 onwards the consumer prices index ("CPI") will be used to increase the IHT nil rate band allowance. What is not clear is whether this means that the nil rate band allowance will rise in line with the CPI each year, or whether the Government will make a decision each year about whether it should rise by this amount.