Recent reports have suggested as many as one in ten UK charities are facing bankruptcy and the sector is facing an estimated £10bn loss for the year from the start of the crisis, due to the ongoing impact of the Covid-19 pandemic and lockdown restrictions. The shortfall, which is caused by soaring demand for charity services during the pandemic as well as lost fundraising income, will have huge implications in the years to come.
Therefore now is a great time to donate to charity and leave something to your charity of choice in your Will. Not only does donating to charity make you feel good, if you do leave a charitable legacy (i.e. leaving something to charity in your will), then it won't count towards the total taxable value of your estate for Inheritance Tax purposes.
Generally speaking, if you have an estate worth over £325,000, then your estate may incur an Inheritance Tax liability following your death, depending on what allowances and exemptions can be claimed based on your circumstances. Inheritance Tax is a tax on the estate of someone who has died, including all property, possessions and money, minus any debts (such as mortgages or loans) outstanding at death, and is generally charged at 40% over and above the £325,000 limit. However, any legacy to a UK registered charity will be exempt from Inheritance Tax so leaving a part or your entire estate to charity can reduce, and in some situations, eliminate the Inheritance Tax liability owed following your death. Furthermore, if you leave at least 10% of your 'net estate' to a UK charity then you can reduce the Inheritance Tax rate on the rest of your estate from 40% to 36%.
It’s never been more important to consider what legacy you want to leave – a gift to a charity can make a lasting difference for future generations to come, and can help save you tax also!