Gifting to Charities…

07 Dec Gifting to Charities…

Gifts to charities are exempt from Inheritance Tax (IHT) whether they are made in lifetime or in a Will, and can reduce the amount of IHT paid on the rest of the taxable estate.  Likewise a gift to a Trust that is established for “charitable purposes” is exempt from IHT.

The Charities Act 2011 defines a charitable purpose as one that falls into one of 13 categories defined in the Act and is for the public benefit. The 13 categories are:

• The prevention or relief of poverty
• The advancement of education
• The advancement of religion
• The advancement of health or the saving of lives
• The advancement of citizenship or community development
• The advancement of the arts, culture, heritage, or science
• The advancement of amateur sport
• The advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity
• The advancement of environmental protection  or improvement
• The relief of those in need, by reason of youth, age, ill-health, disability, financial hardship or other disadvantage
• The advancement of animal welfare
• The promotion of the efficiency of the armed forces of the Crown or of the efficiency of the police, fire and rescue services or ambulance services
• Any other charitable purpose

In most cases, a straightforward gift will be sufficient to gain the exemption. HMRC define a “straightforward” gift as; a gift to charity that is given absolutely and unconditionally. A gift will not be straightforward if it is expressed to be for a special purpose, unless that ‘expression’ is a non-binding wish as to how you would like the legacy to be used. A gift will not be straightforward if it is made to a private or family charity, or to a subsidiary fund of an organisation.

To qualify for the exemption, a charitable gift must be to a UK Registered Charity, and must be outright (not subject to any conditions) and immediate.  Although, a gift that is subject to a condition may qualify for the exemption only if that condition is satisfied within 12 months.

Where a charity gift is made by Will, the exemption will not be available if the gift is not immediate; eg where a Testator leaves their estate in Trust to a person (such as a surviving spouse or child) on a ‘life interest’ (theirs to use for life), with the charity as remainder beneficiary after the end of the life interest.  In this case the charity exemption would not be available on the Testator’s death as the gift to the charity is not immediate, however it would be available on the life tenants death.

The importance of taking professional advice when gifting to charities via your Will is particularly relevant where the remainder beneficiaries of the Testator’s estate are ‘taxable beneficiaries’ (ie not the surviving spouse) – meaning their inheritance would first be subject to IHT.  If at least 10% of the Testator’s estate is left to a UK registered charity, it reduces the IHT on the rest of their taxable estate (anything over their tax-free allowance) by 10% – ie from 40% to 36%, but if the exemption is not available as the gift is not immediate, the full amount of IHT is due.

A qualifying ‘charity gift’ cannot be ‘defeasible’ – ie capable of being defeated on a future event. This may be a gift that could be revoked, or where property is held by Trustees with an overriding power to appoint it to someone other than the charity.

The charity gift cannot be for a limited period, and must be of the whole of the deceased’s interest in an asset, or the whole of a lesser share; eg if you own the freehold of a property and gifts a half share of it to charity the exemption will apply. If you gift the leasehold of the property to the charity, or gift the whole property for a limited time only, the exemption is lost.

There are many opportunities and potential pitfalls when making gifts to charity in your Will, so specialist advice should be taken to maximise the tax efficiencies.  Heir Tight Wills help clients put in place robust provisions and valid documents, to protect their loved ones and their assets both during their lifetime and after their death.

For a FREE Consultation to discuss writing or updating your Will & estate planning provisions, contact Rachael Rodgers on 0845 519 7585, or CONTACT US via email.