The Rewards of Remembering Charities in Your Will

When you’re planning your will, you may be focused primarily on ensuring your family and loved ones are well provided for. However, Investor’s Chronicle writes, by leaving a part of your estate to a charity close to your heart, you could both support a cause you care about and gain some tax relief in the process.

In the UK, approximately £3.9 billion is gifted to charities through wills each year. Through such legacy giving, vital organizations can continue their work, particularly in challenging times such as during pandemics or cost of living crises.

In the year leading up to March 2023, one of the UK’s leading charities, Cancer Research UK, received over a third of its £719 million income from gifts in people’s wills, with one incredibly generous individual donating an awe-inspiring £44 million.

The Benefits of Donating in Your Will

Inheritance tax (IHT), often dubbed the “death tax”, is a charge on the estate of a deceased person, typically paid out of their assets before the remainder is distributed among their heirs. Gifts to charities are exempt from this tax, meaning they can be a useful way to reduce the total value of your estate for tax purposes.

Furthermore, if you leave at least 10% of your net estate to a charity, the IHT rate chargeable on the rest of your estate decreases from 40% to a more palatable 36%.

Stefanie Tremain, partner at Blick Rothenberg, advises keeping this 10% threshold in mind. If you are already planning to make a donation, it pays to ensure you reach this threshold to fully utilise the tax incentive.

Consider donating to charities during your lifetime too. You can receive income tax relief, and if you opt into Gift Aid, your chosen charity will receive a further boost of 20%, courtesy of HMRC.

How to Leave a Legacy

It might seem complex, but leaving a gift to a charity in your will is a straightforward process. There’s no obligation to part with a substantial part of your assets. Many individuals opt for a ‘residual’ legacy, leaving only what is left in the estate after all other gifts, expenses and taxes have been paid.

To facilitate this process, some charities offer free will-writing services, especially during Free Will Month, which is held in March and October each year. If you’re over 55, this could be an excellent opportunity to update your will without incurring the expenses of a solicitor.

Communicate with Loved Ones

It’s important to discuss your intentions with your family. As Shaun Moore, a tax and financial planning expert at Quilter, points out, “Familial relations can get strained if family members are unaware of or disagree with your charitable inclinations.”

The Impact of Your Donation

Your donation can leave a lasting legacy. Even if you can’t afford to donate millions, every contribution is valuable. Your donation, whether to a small local charity or a well-known national organisation, can have a significant impact.

However, it’s crucial to clearly specify in your will which charities you wish to support by including their registered number. Charities evolve over time, and the one you select may not have the same focus at the time of your passing as it does now.

Exploring Different Ways of Donating

Another increasingly popular option for donors with more complex needs is setting up a “donor-advised fund” with the Charities Aid Foundation (CAF). This offers an easy way to distribute your assets to numerous charities, in the proportions you choose, and can include organisations that are not registered charities.

The minimum investment required to establish such a fund with CAF is £25,000, but to enjoy the most bespoke services, a donation of £250,000 or more is preferred.

No matter how you choose to donate, whether in your will, while you’re still alive, through cash or assets, remember that every gift can go a long way towards supporting the vital work of charities all over the UK. And who knows, you might be able to reap some tax benefits along the way!