People who are liable for inheritance tax (IHT) have been urged to make a change to their will to reduce their bill by thousands of pounds.
A person who chooses to leave 10 percent or more of their estate to charity gets a reduced inheritance tax rate on the rest of their total assets, down from the usual 40 percent to 36 percent.
Gianpaolo Mantini, chartered financial planner and partner at Saltus, urged generous Britons who already give to charities to consider making the tax-saving change.
He told Express.co.uk: “Leaving money to charity in a will is a very private aspiration, and often people just don’t think about it.
“But when you start inheritance tax mitigation planning with a client, you often find they have monthly standing orders going to certain charities, or that they are volunteering at a food bank or doing things in their personal time to give back to the community.”
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He said the four percent difference with the reduced IHT rate can make a “huge difference” in tax savings.
The expert said: “For example, if an individual dies leaving a net estate (i.e. after debts and any exemptions) of £1million, the IHT payable on the estate is £400,000, which leaves £600,000 after tax.
“But, if the individual left 10 percent of their estate to charity – in this case, that would be £100,000 – the amount on which IHT is payable is reduced to £900,000, while the rate of IHT is reduced to 36 percent, meaning the amount payable is £324,000 – a reduction of £76,000. The gift to charity is £100,000 but it has only cost the estate £24,000.”
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Mr Mantini said many people don’t know about the reduced rate as it was introduced in 2011 but many people have not changed their will in years.
Research from Saltus found just one in four high net worth estates have set up a charity donation in their will.
Mr Mantini said: “This is often because many people haven’t changed their wills for 10 or 15 years so often don’t know about the rule.
“However, when you explain that this money is currently going to the taxman, but that this small change would see it go to good causes instead, more often than not the answer is, Yes, of course, why wouldn’t I?”
People can also reduce their liability by giving away IHT-exempt gifts. A person can give away a total of £3,000 each tax year divided between any number of people.
An individual can also separately give away any number of gifts up to £250 to different individuals.
A person can give away a larger amount but they will need to survive for another 10 years for this gift to avoid being liable for IHT.
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