Inheritance tax and charitble donations

G_M

I'm aware the law changed this year, and that if you give 10% of your net Estate to charity, the IT rate on the remainder is reduced from 40% to 36%

http://www.hmrc.gov.uk/inheritancetax/pass-money-property/charity-reduce.htm

So how can I achieve this?

If I calculate the value of my estate at the time I write my will (say it is £1m), I can make a bequeath of £100K (10%) to a charity.

But what if between then and death, the value of my house rises and my Estate is actually worth £1.2m? My £100K gift to charity will no longer be 10%.

The alternative is to bequeath 10% of my net Estate (without mentioning a value) to charity.

But then the risk is that my Executers sell my property (say for £500K) and the charity comes along and says "hey, you under-valued the house and should have got £600K. We want our 10% of the higher amount."

Result? A stressful, long, expensive legal battle between by Executers and the charity. (I've read about these...)

So are there any wills/probate/tax guys out there with a solution?

John_Pierpoint

Mentioning a charity in your will should involve a charity getting on the case when probate is granted.
The charity's objectives is not necessarily the same as that of the family beneficiaries.
Just as HMRC gets the first bite at the cherry, if the value of the estate is over £325k (up to £650k for married couples), adding a charity means a three way possibilities for disagreements..

grey_gym_sock

give a specific amount to charities, and let your main beneficiaries increase it by deed of variation if necessary.

or write a new will every year, with revised numbers, to keep the charities' share comfortably over 10%.

loubel

G_M wrote: »

If I calculate the value of my estate at the time I write my will (say it is £1m), I can make a bequeath of £100K (10%) to a charity.
But what if between then and death, the value of my house rises and my Estate is actually worth £1.2m? My £100K gift to charity will no longer be 10%.

There are specialist clauses that can be put into your Will to ensure that you give enough to charity to get the reduced tax rate while allowing you to set a monetary limit on how much they get if desired.

As grey gym sock says though, if you leave a fixed amount and it ends up under the 10% your beneficiaries can always agree to increase it to get the reduced rate.

Either way you should take specialist advice on putting such provision into your Will.

But then the risk is that my Executers sell my property (say for £500K) and the charity comes along and says "hey, you under-valued the house and should have got £600K. We want our 10% of the higher amount."

Charities will push for their full inheritance yes, but your Executors should always be getting the best price for the beneficiaries whether they are charities or not. In an estate that size the property should have been professionally valued for IHT purposes and the beneficiaries consulted on the proposed sale price anyway.

John_Pierpoint

Here is a charity with a proactive stance:
http://www.macmillan.org.uk/Donate/Legacies/Solicitors.aspx

Here is a charity making sure it got all of its pound of flesh:
http://www.stepjournal.org/journal_archive/2010/step_journal_june_2010/seeing_both_sides.aspx

thenudeone

The rules for valuing property, shares, and other assets are all laid out in regulations and won't be affected by whether some of the estate goes to charity.

It's worth knowing the rules in detail because it does give opportunities to legally reduce IHT.

For example it used to be the case (and may still be) that if company shares had fallen in value between the date of death and the date the executors sell them (up to 2 yrs later), they could elect to have the lower sale value used in the IHT calculation. This is just an example but there are others, so it's worth reading up around the whole subject.

Which? probably does a book on the subject.