Families save £1.28billion in Inheritance Tax by leaving gifts to charity

Families save £1.28billion in Inheritance Tax by leaving gifts to charity The amount of Inheritance Tax saved through charitable gifts is up 88% over the last five years, from £680million Families saved £1.28billion in Inheritance Tax last year by leaving gifts to charity in their wills, according to a law firm. Inheritance Tax has to be paid after someone has died if the value of their estate - including money, property, and possessions - are worth over £325,000. The standard rate that is charged is 40% on the value above this amount. But new data from TWM Solicitors shows the amount of Inheritance Tax saved through charitable gifts is up 88% over the last five years, from £680million. Gifts to charity are exempt from Inheritance Tax. In addition, where 10% or more of an estate is left to charity then the remaining taxable estate benefits from a reduced Inheritance Tax rate of 36%, compared with the standard 40%. HMRC figures show this reduced-rate relief saved estates £55million in Inheritance Tax last year. Gillian Dunlea, Managing Associate at TWM Solicitors, said leaving charitable gifts is often driven by personal reasons but adds that many families do not realise that it can reduce Inheritance Tax. She said: “Some people are understandably concerned about the level of IHT payable on their estates, and charitable giving can appeal because gifts to charity are free from IHT.” “With pensions being subject to IHT from 2027, pensions may become less tax efficient for families to inherit, so clients should review their pension nominations alongside their wills, particularly where they intend to make charitable gifts as part of overall estate planning.” “Many charities are under increasing financial pressure and legacy gifts do play an important role in supporting their long-term work. For some charities, larger gifts left in wills can be transformative.” In the UK, fewer than 5% of estates trigger an Inheritance Tax bill. This is because there are several rules and allowances that are in place that can actually boost your tax-free threshold. For example, there is no Inheritance Tax due on any gifts if you live for seven years after giving them - unless the gift is part of a trust. There is also no Inheritance Tax to pay when an estate is left to your spouse or civil partner. If you give away your home to your children or grandchildren, then you get an additional £175,000 allowance. This therefore increases your overall Inheritance Tax threshold to £500,000. If you are married or in a civil partnership, any Inheritance Tax allowance that isn’t used can be passed on when someone dies. This means a couple can potentially pass on as much as £1million without their estate being subject to Inheritance Tax.