Deciding to give to charity in your will is such a wonderful thing. Charities rely heavily on gifts from wills and life insurance. And it’s an incredible way to give back even after you’re gone! 🤩
However, there is an added bonus. It can also have an implication on the tax you pay.
Choosing a charity
It’s not always easy to choose a charity if there isn’t one in mind that you love or have supported throughout your life. So, if you don’t have a specific charity in mind you can leave the decision to others. You can state in your will that you want a specific amount donated to charity and ask that trustees of the will decide where it should be spent. Or, you can join us in supporting our partner Panda’s, check them out.
KEY 🔑: Once you choose, it’s wise to mention the charity’s registration number as this can’t be contested.
Tax benefits of giving to charity
As mentioned, an extra incentive of giving to charity is that it will reduce the amount of tax you’ll need to pay. While it can get a lot more complicated, at the basic level, the inheritance tax threshold is £325,000 and anything over that is taxed at 40%.
Anything that you give to charity will come out of your estate before inheritance tax is considered. For example, if your full estate is £350,000 and you give £50,000 to charity then your loved ones aren’t going to pay any inheritance tax. In this example, without the charitable donation, the taxable amount would be £10,000 (40% of the £25,000 over the threshold).
Another key consideration is that any charitable gift at 10% or more of your estate will reduce the inheritance tax amount from 40% to 36%. If you’re already considering giving a sizable sum to charity, then it makes sense to push it up over 10% of the tax benefits.
Using the percentages (let’s get technical, technical! 🔣)
Let’s use an example of an estate worth £500,000 and therefore the amount after the tax allowance (£325,000) is £175,000.
Scenario 1: You leave 5% to a charity which would be £8,750 and the taxable amount would be £166,250. At 40%, this is £66,500 in tax and that leaves £99,750 to your loved ones.
Scenario 2: You leave 10% to a charity which would be £17,500 and the taxable amount would be £157,500. At 36%, this is £56,700 in tax and that leaves £100,800 to your loved ones.
As you can see here, if you’re already thinking about giving to charity, your loved ones can actually be left with more if you increase your donation amount to 10% or more.
What can I leave to charity?
Pecuniary (cash) gift - When it comes to charity, many people think about simply leaving a cash gift. It can be the easiest way to make a donation as you simply write the amount and who it’s going to be left to.
Asset – Another way to give to charity is to give them an asset. This can be any asset you choose (such as property) and will be removed from your estate for the purposes of inheritance tax.
Residuary estate – You can also choose to give a charity a percentage or set amount of the estate after everything else has been settled.
If you want to leave a lasting legacy that is a bit more personal, you can think outside the box and donate to something specific. You could donate to a play park or a specific building for example. However, you should speak to the charity beforehand to explain your vision. That way, the charity can advise and work with you to achieve your plan.
So, should I give to charity?
Giving money to charity in your will is a wonderful legacy to leave behind. As we have seen here, there are also some great tax benefits from donating money.
As mentioned earlier, we partner with an amazing charity called Panda’s and they are doing incredible work. They are also just the first of many charities that we will partner with to make sure everyone gets a will, and charities get much needed help.
So, should you give to a charity in your will? The answer is yes! 👍