An estate can pay Inheritance Tax at a reduced rate of 36% on some assets (instead of 40%) if 10% or more of the ‘net value’ of their estate is left to charity.
The net value of an estate is the total value of all the assets after deducting:
• Debts and liabilities
• Reliefs
• Exemptions, for example, anything left to a husband, wife or civil partner
• Anything below the IHT threshold of £325,000 (the nil rate band)
An estate doesn’t have to pay IHT on any gifts given to charities, museums, universities or community amateur sports clubs.
To pay the reduced rate, the assets must be left to:
• Charities with an HM Revenue and Customs (HMRC) charity reference number
• Community amateur sports clubs (CASCs)
Writing a Will – You can write a clause into your Will to make sure that you’ll leave 10% of your estate to charity.
Change a Will – The beneficiaries of an estate can change the Will to make or increase a donation to a charity so the estate meets the 10% test.
Opt out of paying the reduced rate – If you’re the executor of a Will or administrator of an estate, you can choose to pay IHT at 40% rather than the reduced rate – if the beneficiaries agree. This can make it easier to deal with the estate, for example, if the cost of getting some of the assets professionally valued would outweigh the benefits of paying the reduced rate.