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Alistair Cunningham
Changes introduced from 6th April 2012 reduce the level of inheritance tax from 40% to 36% where 10% of the ‘net estate’ is gifted to charity. We believe each family should consider gifting 10% of the value of their estate, subject to affordability on death. In the case of a married couple, this would normally be on the second death.
| Without a donation | With a donation | |||
| Gross Estate | £1,000,000 | Gross Estate | £1,000,000 | |
| Less: Nil Rate Band | -£325,000 | Less: Nil Rate Band | -£325,000 | |
| Net estate on which charitable legacy is calculated | £675,000 | Net estate on which charitable legacy is calculated | £675,000 | |
| Received by charity | £0 | Received by charity | -£67,500 | |
| Taxable estate | £675,000 | Taxable estate | £607,500 | |
| Less: Inheritance tax @ 40% | -£270,000 | Less: Inheritance tax @ 36% | -£218,700 | |
| Remaining estate (inc. nil rate band) | £730,000 | Remaining estate (inc. nil rate band) | £713,800 | |
The estate’s beneficiaries ‘lose’ £16,200 but the charity gains £67,500. This represents a benefit to the charity of four times greater than the value of the donation, or put another way, an effective tax relief of 76%
Contact the Author
Alistair, a founding director of Wingate Financial Planning, specialises in complex client cases, particularly owner-managed businesses, pensions, and retirement planning. He is a member of the Wingate Investment Committee and a Chartered Financial Planner, Fellow of the Personal Finance Society, and member of STEP and the Chartered Institute of Taxation.
