Ask Money: how does IHT work in relation to legacies to charities?

Would you like expert advice on a financial problem? This week, Sue Stevens of Dentons Wealth responds to a question about leaving money to charity.

October 27, 2018

Leaving cash to charity

Can you please tell me how inheritance tax works in relation to legacies to charities? I do not have a spouse or children and the value of my estate will exceed £325,000. Am I able to leave up to £325,000 to individuals and the remainder to charities without incurring liability to IHT? 
J. Runham, Northants

Sue Stevens of Dentons Wealth replies: Every individual has a nil rate band of £325,000, which is the amount they can leave in their will without being subject to inheritance tax. Thereafter the estate is taxed at 40%.

You can also cut 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. However, if you leave the estate to charity this can eliminate the inheritance tax liability, as it won’t count towards the total taxable value of your estate.

In your case, you are able to leave the available nil rate band of £325,000 to individuals, and providing the remaining estate is left to charities, no inheritance tax liability will arise.

It is worth noting that you can also make exempt lifetime gifts. You can give away £3,000 worth of gifts each tax year (6 April to 5 April) without them being added to the value of your estate. This is known as your "annual exemption". You can carry any unused annual exemption forward to the next year, but only for one year.

If you need help with a tax, pension or financial planning problem,  please email: moneyobserver.ed@moneyobserver.com

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