It has long been possible to reduce exposure to inheritance by making donations to charities irrespective of whether a chosen charity is based in the UK or the European Union.
However, the Government has now removed those reliefs when donations are made to European charities. Whilst donations to a charity will rarely be made entirely for tax reasons, the change continues to surprise and catch out on the generosity of many individuals.
Individuals will not need reminding that the inheritance tax threshold (IHT) has remained unchanged at £325,000 since 2009. There are many reliefs that can apply to an estate, such as the residence nil-rate band relating to property and the transferable nil-rate band allowing the nil-rate band to be transferred to a spouse.
One valuable relief has been the ability to make charitable donations reducing the amount in your estate liable to IHT. And if an individual leaves 10% or more to charity, the IHT rate on the remaining estate will fall from 40% to 36%. This relief is available when donations are made to charities registered with the Charity Commission and their counterparts in Scotland and Northern Ireland.
Charitable donations and legacies can be made at any point in time but are increasingly commonplace in Wills. In fact, many charities will help you prepare a Will free of charge in the expectation that a legacy will be left to them.
Until April 2024, donations left to charities in Europe would qualify for IHT relief. And whilst figures are difficult to find, UK nationals are generous with European animal and children’s charities popular beneficiaries. The change is likely to catch out the 1.2 million UK expats living in the EU who may not be aware of the changes.
Take action
Individuals who have included charitable donations in their Wills, particularly donations to European charities, are advised to review those Wills to consider those donations and any IHT implications.
It may be possible that some larger European charities will have a UK arm meaning that IHT relief will continue to apply. If they do not, donations can of course still be made but the IHT benefits will be lost.
At the same time, individuals leaving any charity a donation or legacy are advised to ensure they include in their Will the full and correct name of the charity, its address and the Charity Commission registration details. It is surprising just how many good-intentioned individuals get the name of their preferred charity wrong, which can at best delay any legacy or see it go elsewhere.
Your solicitor can help draft a Will that best reflects your wishes and where legacies are left include the relevant information to ensure they receive what you leave them.
Contact our Private Client Solicitors
If you are in need of advice or assistance on any of the legal issues mentioned in this article, please contact Olivia Meekin, Partner or any member of our experienced Private Client team on 020 7631 4141 or email privateclient@bishopandsewell.co.uk
The above is accurate as at 31 May 2024. The information above may be subject to change.
The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.
