Leaving money to charity in your Will

Leaving money to charity in your Will

Like many others, you may consider leaving money to charity in your Will. Your legacy can be a fixed amount of money or a percentage of your residuary estate. Your residuary estate is the amount left after payment of any specific gifts in your Will from the ‘baseline amount’. The baseline amount is the value of assets in your sole name (as opposed to joint assets or assets held in trust), less Inheritance Tax (IHT) exemptions, debts, and funeral expenses. However, remember that splitting your residuary estate between charities and individuals may result in them receiving unequal shares, as the gift to charity is tax-free.

It’s also possible to make a charitable gift inflation-proof by including a clause index-linking the gift.

Also, remember that gifts to charity do not necessarily have to be money. Some people leave property or items such as art or antiques. For example, one of our clients recently left a family heirloom to a relative for life, after which it passes to her chosen charity – known as a reversionary gift.

Which charities can I support in my Will?

When leaving money to charity in your Will, you can support any charity you choose. Most charitable legacies go to registered charities. However, an organisation does not necessarily need that registered status for you to benefit from the tax advantages of charitable giving (for which, see below). The tax rules apply as long as the definition of a charity is satisfied. Section 1 of the Charities Act 2011 sets out that definition. However, if the organisation is not a registered charity, always take advice first.

Leaving money to charity in your Will: What to do

When instructing us on writing your Will, let us know which charity(ies) you wish to support. Remember, there are many charities, and it’s not unusual to find some with similar names. Also, charities occasionally change their name. However, charities have a unique registration number and we include that in your Will.

Although rare, somebody – most likely a family member – may feel that your Will makes insufficient provision for them. If so, they might bring a claim against your estate under the Inheritance Act. To reduce the possibility of a family rift or even expensive litigation, always consider whether a charitable gift might cause friction. Most often, this happens when the size of the gift represents a significant proportion of your estate.

If you want the charity to use the funds for a particular purpose, you can say so in your Will. But always check with the charity that this is feasible, otherwise your wishes can be ignored.

Are donations to charity in a Will tax free?

Regardless of the amount, a gift in your Will to a qualifying charity is exempt from IHT.

However, if the gift satisfies certain conditions, it can also reduce the IHT rate of your estate from 40% to 36%. We will discuss this with you as part of your IHT planning. In short, however, the 36% rate applies where you leave at least 10% of the ‘baseline amount’ of your estate to charity.