According to the legacy consortium Remember a Charity, over 1,000 fewer individuals could donate to charities as part of their wills as a result of changes to inheritance tax allowances.
In the 2015 summer Budget, a new inheritance tax framework was announced which was introduced on 5 April 2017. It implements a new residence ‘nil-rate band’ of £100,000 when a property is passed on to a direct relative and is intended to facilitate passing on the family home without incurring any extra tax charges.
The new nil-rate band could potentially reduce the amount of people who can benefit from the tax incentives for charitable giving. For those who donate at least 10% of their estate to charity there is a tax break available, with the rate of inheritance tax paid on their estate falling from 40% to 36% as a result. There could subsequently be a reduced incentive for people to make charitable gifts in their wills as a result of introducing the new allowance.
The current inheritance tax threshold is £325,000 and the residence nil-rate band will be in addition to that. This means that a couple would have a tax-free allowance of £850,000 which in 2020/21, could rise to £1m.
There are however, some positives to take from the changes, the main one being that the nil-rate band will ultimately lower the net value of an estate, so it should cost less for people who are above the inheritance tax threshold to access the reduced 36% rate by giving to charity.
Simon Bladen, Charity Partner at Hawsons, had this to say: “This could have an interesting impact on those charities that receive regular legacies, although I think it will probably impact the larger charities more than anyone else. The key will be for will writers to continue to ensure people are made aware of charitable giving options.”
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