Thursday 12 June 2014

Inheritance tax: the opportunity for charities

Three recently published articles should interest charities specially those who depend on legacies for survival.

The first was an article in the London Standard of Tuesday June 10 and concerned Britain’s millionaires. According to Lucy Tobin, there are 513,000 households in the UK which have been identified as worth one million dollars or more. Of these 1044 are very wealthy with assets of over 100 million dollars.

In the same issue in another article, Lucy Tobin discussed the benefits of leaving money to Charities in your will. Apparently there is a significant tax advantage, in a reduction of inheritance tax, if you bequeath 10% or more of your assets to Charities. Money left to Charities is of course tax exempt but the tax paid after this and tax-free allowance by beneficiaries also drops from 40% to 36%.

An example highlights this advantage.

Assume you have assets of £1,325,000 in your estate when you die. Excluding The IHT allowance of £325,000, there is £1,000,000 for which tax is due.

If no money is left to a Charity, inheritance tax of £400,000 will have to be paid leaving £600,000 for the beneficiaries. Plus of course the tax-free allowance of £325,000.

If however 10% of the estate is provided for Charities, then in addition to them benefiting by £132,500, inheritance tax at 36% will be paid on £867,500, totaling £ 312,300, leaving £555,200 to the beneficiaries. Plus the tax-free allowance of £325,000.

In other words your generosity of awarding £132,500 to good causes is only costing your other heirs £44,800.

This surely is an opportunity that should be promoted by Charities?

Andrew Papworth publishes Harvest, a monthly newsletter and in the June issue writes about baby boomers. He states that the time to approach them about possible bequests is now, since they will begin the journey to the “unknown land” soon. People born between 1946 and 1966 will die between 2017 and 2046. Their wills probably drawn up between 1997 and 2026.

Only 37% of all adults have made a will and the numbers rise slowly as we get older. 36% of adults currently between the ages of 45 to 54 have, 58% of adults aged between 55 and 64 years have also made a will and the proportion rises to 79% for those over the age of 65.

And Andrew says: time is running out if you plan to approach the baby boomers for legacies.

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