Leaving 10% to charity in a Will

StevieD54

I know that if you do this, the IHT taxation rate is then reduced to 36% from 40%. But does this only apply to ‘cash’ assets, i.e. property is a separate thing, or is your whole estate (including the property) used as the figure from which you bequeath 10% to charity?

When he died last year, my Mum inherited my Dads property, worth @£230k. So there is £350k max RNRB that can be claimed upon her death, as I understand it.

She has cash assets of £400k, so I assume is this the figure to be used from which to bequeath 10% to charity?  So this would reduce her cash to £360k, then take off the £325k personal IHT allowance, leaving £35k subject to tax at 36%. Correct?

Brie

I thought it depended on how the will was worded.  Donating 10% of what cash savings a person has is very different to donating 10% of the estate which would include the value of any houses, jewellery, cars, paintings etc.  

Sorry I can't make sense of your figures but I'm not an IHT expert at all.

StevieD54

Brie:
As you point out, bequeathing 10% of what cash savings a person has is very different to donating 10% of the total estate. This is what I’m trying to get my head around. Is the property value included if my Mum leaves 10% to charity, or not?

So if her cash is £400k and the property is worth say £230k, her total estate is £630k.  But do I use £630k or £400k as the figure from which to bequeath 10% to charity?  I would have thought it excludes any property, as you can hardly leave 10% of a property to anyone!

If she died tomorrow and had stipulated in her Will that 10% is left to the Bloggs Dog Home, does the dog home get £63k or £40k?

Any advice appreciated.

theoretica

If you die with a £10 million house and £100k in the bank you can't get a lower IHT rate by gifting £10k to charity.  It is on the total value of the whole estate.

But, did mum inherit everything from her husband?  If so, there is his nil rate band to use too - so 325kx2 + property up to 350k

RAS

As theoretica says, if mum inherited from dad, and the house (or it value if she moves into a home) is left to descendants, the possible IHT allowance is currently £1m, although you wouldn't be able to use the full £350k residential allowance.

So your plan isn't necessary under current rules.

km1500

just to be crystal clear you need to donate 10% of the total estate in order to benefit from the reduced rate of inheritance tax

Marcon

km1500 said:

just to be crystal clear you need to donate 10% of the total estate in order to benefit from the reduced rate of inheritance tax

...and to make the crystal even clearer, that's 10% of the net estate.

See https://www.gov.uk/inheritance-tax-reduced-rate-calculator#:~:text=You%20may%20qualify%20to%20pay,preparing%20your%20own%20will

techphobe

It’s 10% of the total value of the estate. It doesn’t have to be 10% of each asset. 

You don’t explicitly say that your dad left everything to your mum only that he left her the house. So assuming you know there will be IHT to pay there is a calculator here to check how much you need to leave to charity. 

https://www.gov.uk/inheritance-tax-reduced-rate-calculator

StevieD54

OK, thanks everyone. I know all about the rules on married spouse allowances possibly totalling £1m, I was just unclear on this charity thing.

But just to explore Theoretica’s £10m house example, I wouldn’t expect a lower rate, as you can only claim £350k on a property.  But if that theoretical person with the £10m house did leave 10% to charity, where would that £1m come from, without selling the property?  That’s why I thought it wouldn’t apply to property.

My mum actually does want to leave money to charity, so it’s not just for tax avoidance, as she’d rather it went to charity rather than HMRC. 

theoretica

If there isn't enough cash or other assets in the estate, the property is sold, of course  Quite often happens when someone passes away.  If one of the beneficiaries wants to keep it, they might be able to buy it using their share and other money or a mortgage to cover the portion they are not inheriting.

StevieD54

So the property has to be included in the total estate valuation, but when it comes to the IHT bill and the remaining taxable amount, surely the property is excluded?  I understand it’s exempt if its value is less than the 2x spouse RNRB’s (2x £175k).

So to quote my Mum’s actual situation………Cash £400k, property £220k, Total estate = £620k.  She then leaves 10% to charity……£62k.
Once that bequest is made, her cash assets would be reduced to £338k, just £13k above her £325k allowance.  So what is the IHT bill?  36% of £13k?  Or is the property ‘valuation’ taxed as well, even if it has not been sold?