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The Tax benefits of giving to charity

The Tax benefits of giving to charity

When people make a Will, they often think about leaving a bequest to their favourite charity but what you may not know is that there can be significant benefits to leaving money to charity in your Will.

Leaving money to a UK charity in everyday life is, of course, tax-free and this exemption extends to any gift that is included in your Will

How inheritance tax is affected by charitable giving

There are two main ways in which inheritance tax can be reduced by leaving money in your online Will.

The first is simply that, as a charitable gift goes in full to the charity it is not subject to inheritance tax at all.

If we think of a £10,000 donation, this means that instead of the money being split 60/40 with 40% going to the exchequer, the money all goes to the charity.

The second way can be very beneficial for not only your nominated organisation but also your other beneficiaries.

The treasury allows estates an extra 4% relief on inheritance tax payable as long as at least 10% of the estate is donated to charity.

By the time the inheritance tax allowance has been deducted it means that a substantial gift can be made to charity with only a small net effect on other beneficiaries.

For example, let’s imagine an estate worth £500,000;


So, from this example we can see two things; firstly, the total tax surrendered to the treasury is reduced from £70,000 to £56,700.

Secondly, the charity receives a healthy £17,500 donation but it only actually costs the beneficiaries £4,200.

Of course, this is a broad-brush example and it is important that you take individual tax advice before committing to anything but this is certainly something that you should include in the mix.

How to give to charity in your Will

It’s a fairly simple process to leave a bequest to a charity in your Will but there are a couple of things that you need to bear in mind.

Firstly, make sure that you use the correct charity name, but also include the charity number as often organisations change their name completely.

Secondly, you need to be aware that some charities merge or go out of existence altogether, in which case you’ll need a backup plan so maybe have a list of the order that the money should be distributed or some other method of donating.

You don’t need to give to one charity specifically though, you could, for instance, leave an instruction that the executor should choose a couple of dog’s charities and they could decide.

You can specify what the charity uses these funds for (called restricted funds in charity parlance).

It might be that you want to fund a particular project or development but from experience, we know that they prefer to have unrestricted funds so that they can use them as they see fit.

Can Donations be contested?

The Inheritance Act has conditions that require you to provide reasons for any financial dependents you may have.

If you don’t do this, then a family member may be able to contest a bequest.

A family member might also claim that you were under undue influence or were not of sound mind when making the gift.

Should a claim be successful, it could either contest the gift or have your entire Will declared invalid.

Leaving money to charity is something that can easily be accommodated in the Smart Will app and we have experts on hand to give you help and advice as to the best way to go about it.

As we can see, leaving money to charity is a good thing to do but could also lower your inheritance tax bill.

Download the Smart Will App here and leave a gift to charity in your online Will.


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