With more and more people considering leaving a legacy to charities in their Will, today’s budget announcement is great news for charities, who rely heavily on funding from individuals.

The Chancellor George Osborne has announced a 10% discount on inheritance tax for those individuals who engage in charitable giving in their Wills.  The 10% discount will apply when individuals leave 10% or more of their net estate (that is to say the value of the estate after deducting liabilities, IHT exemptions, reliefs and the nil rate band) to charity.

Inheritance tax is levied at 40% on estates in excess of the nil rate band, which is currently set at £325,000.00. The nil rate band was frozen in last year’s budget. The proportion of an individual’s unused nil rate band can be transferred to a surviving spouse, meaning that on the death of the surviving spouse there is the possibility of a combined nil rate band of up to £650,000.00.

The new 10% discount will be applied to any inheritance tax due on the net estate. In applicable cases the 40% rate of tax is therefore reduced to 36%. Gifts to charity are already exempt from Inheritance Tax, meaning that the new discount will reduce the IHT payable on other non-exempt gifts.

Whilst the new IHT discount will not in theory benefit other beneficiaries (as the 10% discount will in effect be cancelled out by the need to leave a legacy of at least 10% of the net estate to charity) it will be of interest to those who wish to mitigate the tax payable on their estate on death.

The new IHT rate will apply for deaths on or after 6th April 2012 and the government have estimated that this will bring in an extra £300 million for charities.

If you would like further information on this article or have any other queries relating to wills or probate please do not hesitate to contact us.