Bequeathing money to a charity not only leaves a positive legacy, but it can have tax benefits for other beneficiaries, too. Here’s how to do it in time for Free Wills Month.
Deciding who to leave money to in your Will isn’t always easy, and those who have the means often consider including a charity donation as well. But how do you decide which charities should benefit, and are there any financial implications to consider? All difficult decisions to make when it’s your money on the line.
Picking charities to benefit will often come down to your own preferences. “Think about particular sectors you’re interested in, such as animal welfare, overseas aid, medical research, children’s support and so on,” advises Stephen Beck, director at law firm Whitehead Monckton.
“You might have particular charities in mind or may wish to think about these broader categories first, and then look at the charities within that sector that interest you. The Charities Commission website allows you to look into the work carried out by each charity, as well as its financial records, which are open to public inspection.”
This last point can be particularly important if you want to make sure that your donation will have a genuinely positive impact. The records allow you to “see how much of [the charity’s] income goes on operating costs and how much actually goes to the cause itself,” explains Miriam Spero, head of the private client department at Branch Austin McCormick. “Giving to a smaller charity can have more impact, as £1,000 to a local charity with an annual income of £50,000 is obviously more significant than one with an income of £50m.”
Are there any financial benefits?
Luckily, the financial implications are broadly positive — particularly when it comes to tax. “If you leave a gift to a UK or EU charity, the gift is exempt from inheritance tax,” explains Miriam. She points out that this also reduces the size of your taxable estate, so if you were to leave £5,000 to charity, the tax due on your estate would reduce by the same amount.
Stephen adds, “Another benefit of gifting to charities is that if you leave at least 10% of your estate to charities in your Will, then the rate of inheritance tax your estate will pay on the remainder is reduced from 40% to 36%.”
This can make a significant difference to the amount your beneficiaries pay. “It means the taxman gets less, your charity gets a legacy and it costs your taxable beneficiaries very little,” adds Miriam.
Be specific with your bequests
Then you just need to make sure your money is distributed as you wish it to be. Stephen explains, “Write a Will that clearly identifies the charity, usually including its address and registered charity number, and say how much [it] is to receive. This could be a specific amount of money or instead a percentage share of the estate, depending on your wishes.”
And it can make a huge difference to the charities in question. Indeed, many get a significant proportion of their income from such gifts, including national pet charity Blue Cross.
“Gifts left by generous supporters in their Wills ensure we can continue our vital work helping thousands of sick, injured and homeless pets through our rehoming, veterinary and behaviour services,” says Emma Colborne, head of legacy administration at the charity. “More than half of our income comes from money left in our supporters’ Wills, and a gift of any size can help us to continue our work across the country.”
“Giving money to charities in Wills is a very effective, welcome and tax-efficient way to help contribute to the work of those causes that are closest to your heart,” concludes Stephen, highlighting the benefits
for all concerned.