Financial benefits of leaving a gift in your Will

Inheritance tax (IHT) may be payable on the value of a person’s estate when they die, if the value of the estate exceeds the IHT threshold set by the government. For the period 2009 to 2015, the IHT threshold is £325,000.

Charitable legacies are generally exempt from IHT, so a gift to the Zoological Society of London is likely to be free of tax for us. A gift to charity may also reduce the level of IHT that your friends and family are liable for.
From 6 April 2012, changes to government legislation mean that anyone leaving a minimum 10% of their taxable estate to charity can qualify for a reduced rate of inheritance tax, from its normal level of 40% of taxable wealth down to 36%.

Below are two examples of how this would work in practice:

Scenario 1: a gross estate worth £500,000

Without a 10% donation to charity

 

With a 10% donation to charity

Gross value of estate

£500,000.00

Gross value of estate

£500,000.00

Nil rate band (the IHT threshold)

£325,000.00

Nil rate band (the IHT threshold)

£325,000.00

Net value of estate

£175,000.00

Net value of estate

£175,000.00

Charitable donation

£0

Charitable bequest (10%)

£17,500.00

Taxable estate

£175,000.00

Taxable estate

£157,500.00

Rate of IHT applicable

40%

Rate of IHT applicable

36%

IHT payable

£70,000.00

IHT payable

£56,700.00

Remaining estate (inc. nil rate band)

£430,000.00

Remaining estate (inc. nil rate band)

£425,800.00

In this scenario, the net result of a 10% donation under the new system means the estate’s beneficiary foregoes £4,200 but the charity benefits by £17,500.

Scenario 2: a gross estate worth £1,000,000

Without a 10% donation to charity

 

With a 10% donation to charity

Gross value of estate

£1,000,000.00

Gross value of estate

£1,000,000.00

Nil rate band (the IHT threshold)

£325,000.00

Nil rate band (the IHT threshold)

£325,000.00

Net value of estate

£675,000.00

Net value of estate

£675,000.00

Charitable donation

£0

Charitable bequest (10%)

£67,500.00

Taxable estate

£675,000.00

Taxable estate

£607,500.00

Rate of IHT applicable

40%

Rate of IHT applicable

36%

IHT payable

£270,000.00

IHT payable

£218,700.00

Remaining estate (inc. nil rate band)

£730,000.00

Remaining estate (inc. nil rate band)

£713,800.00

In this scenario, the estate's beneficiary forgoes £16,200 but the charity benefits from a legacy of £67,500.

It is important to remember that IHT can be a complex issue. There are different ways that you can own assets such as money, land or buildings and the way that you own the assets and with who affects the way they are treated when deciding whether the reduced rate of tax can apply.

Your solicitor or financial advisor will be able to advise you on the best way to take advantage of any financial benefits that may be relevant to you and your estate. ZSL strongly recommends that anyone wishing to make or update their Wills speaks to a solicitor.

Legacy gifts of all sizes are a vital source of income to ZSL.