How to leave money to charity in your will (and save tax)

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Most of us write a will because we want to leave money to family and friends, but it’s also an opportunity to help a charity that you care about. And leaving money to charity can mean you save inheritance tax as well.

Who to leave money to
Most people who donate money to a charity in their will leave it to one they have a connection with, but you can leave money to any charity you choose.

SAVVY TIP: If you’re leaving money to a small charity it may be worth stating that the money should go to a charity working in the same or similar field in the event that it closes, otherwise those sorting out your estate wouldn’t be able to make the donation to help the cause you’re keen to support.

A fixed amount or a percentage?
You can leave a fixed amount or a percentage of your estate; the choice is down to you.

– A fixed sum is called a pecuniary legacy.

SAVVY TIP: This has the advantage of ensuring that the charity will receive a set sum, no matter how much or little you leave behind.

– A percentage is called a residuary legacy.

SAVVY TIP: This can be a good option if you don’t know how much you’re likely to leave behind. For example, you may find that you don’t leave much behind because much of the money you had has been used to fund long term care. Alternatively, you could inherit a sizeable sum after you’ve drawn up your will but before you die which means you leave a lot more.

Inheritance tax basics
Under the current rules, you can leave what’s called your inheritance tax allowance or the nil rate band of £325,000 worth of money and property when you die without paying inheritance tax (this allowance can change from year to year so it’s worth checking that it’s not been increased). Whatever you leave above that allowance has to have inheritance tax deducted at 40%, although you can leave as much as you’d like to your husband, wife or civil partner and there’s no inheritance tax to pay.

Leaving money to charity and inheritance tax
Money you leave to charity is taken off the value of your estate before working out how much inheritance tax you owe. So, for example:

– If you have money and property worth £500,000 and leave £30,000 to charity

– Your inheritance tax allowance is £325,000 (assuming you aren’t married or in a civil partnership)

– If you didn’t leave any money to charity, you would have £500,000 minus £325,000 – which equals £175,000, on which inheritance tax could be paid

– This would mean there would be an inheritance tax bill of £70,000 (£175,000 x 40%)

– If you left £30,000 to charity there would be £145,000 on which inheritance tax would be paid. This works out at £58,000.

SAVVY TIP: You can give away money while you’re alive, but if your money and assets are worth more than £325,000 and you gave away more than a few thousand pounds a year to family members, for example, there could be inheritance tax to pay if you died within seven years of giving away the money. But if you give away money to charity while you’re alive, these rules don’t apply.

Leaving more than 10% of your estate to charity
From 6th April 2012 people who die after that date and who leave at least 10% of their money and property once debts have been paid, to charity may get a 10% reduction in the rate of inheritance tax they pay. This reduces the inheritance tax rate from 40% to 36%.

HM Revenue & Customs has a calculator that you can use to work out whether you would qualify to pay the reduced rate of tax.

SAVVY TIP: If you want to make sure you qualify for the reduced rate of inheritance tax, you can specify this in your will. Your solicitor will advise you on the wording. The Gov.uk website has more information on giving away more than 10% of your estate to charity on its website.

Useful links:
If you want to leave money to a charity, many of their websites have specific information on how to go about it.

For example:

MacMillan Cancer Support: gifts in wills

Breast Cancer Care: leave a gift in your will

Save the Children Leave a legacy

RSPCA information on Leaving money in your will

Related articles:

Leaving money to your pet when you die

When can you challenge a will?

Why you should have a will

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