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How to Reduce the Inheritance Tax Bill by Gifting to Charity


3 min read
How to reduce your inheritance tax bill by gifting to charity

This can be one of the easiest ways to save yourself some inheritance tax, and potentially avoid paying any at all.

Provided you seek the right advice and make proper arrangements, you could be looking at saving thousands of pounds for your family whilst at the same time leaving a legacy of helping others and looking after causes that are close to your heart. The ways to do this are:

1. Lifetime gifts to charity

Making gifts in your lifetime to charity can save tax during your life, and are a good way to reduce the size of your estate. You will be around to see the rewards of your investments; whether this be a new conservation area for wildlife in your local park or some new equipment in a nearby hospice – you can enjoy seeing others benefit from your money.

If you gift enough to charity, you may be able to reduce the size of your estate enough to bring it below the inheritance tax threshold, and potentially pay no inheritance tax upon your death.

2. Leave a legacy in your Will

Any legacy left to charity in a Will reduces the inheritance tax bill. However, if you leave a big enough legacy, you will not only benefit from the amount going to charity being tax free, but the rest of your estate will also pay a lower rate of inheritance tax. It is possible to reduce the rate of inheritance tax from 40% to 36% - potentially a huge saving for your heirs as it is on the whole of your estate!

With the proper advice and correct calculations, you can leave more money to charity, pay less tax and have more money leftover for your family than if you did not leave the gift to the charity. This relies of accurate and careful drafting of the gift in your Will to ensure you meeting all of the criteria to qualify for this useful tax exemption.

Your choice

Lots of people complain about inheritance tax and do not think it fair to pay inheritance tax on money earned that potentially has already paid income tax. Some would say that any form of tax is contributing to society’s costs. The difference is that if you choose to make a gift to charity; whether during your lifetime or in your will, you decide where to direct that gift. You choose a cause close to your heart, and you decide how much the gift will be.

Choosing a charity

As a final point to consider, you need to make sure that your gift is to a qualifying charity. Most charities have a charity number allocated to them by the charity commission. You can look up their accounts online, check how they spend their money and ensure that you are donating to a legitimate organization and one that qualifies your estate for tax relief.

We are here to help; we have charity directories if helpful, and can help you calculate the value of any lifetime gift or within your will, and most importantly draft your deeds of gifts or wills appropriately to make sure that you really do save more for your family whilst doing some good too!

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