Reducing Inheritance Tax - Charity Rate

16-Jan-2012 On a testator’s death, the value of the estate in excess of £325,000 (or £650,000 if the transferable spouse exemption is fully available) is charged to inheritance tax at 40%.

In the 2011 Budget the Chancellor announced that from April 2012 there will be a reduced rate of Inheritance Tax for Wills which leave 10% or more of the chargeable estate (i.e. the balance of the estate above £325,000 or £650,000) to charities. Under the Budget proposal, the rate of inheritance tax on the 90% of the chargeable estate (passing typically to children) will be reduced to 36%.

Following the Budget the Government undertook a consultation on this proposal; and we await the results. However we anticipate that this proposal will be included in the Finance Act.

As a result of this proposed new tax cut you may wish to review your Wills, particularly where existing Wills already leave pecuniary legacies to charities. We have identified a number of cases where revoking the pecuniary legacies and replacing them with a legacy of 10% of the chargeable estate to charities will not only result in an increase in the amount received by the charities, but quite astonishingly and perhaps more importantly will increase the amount the children will receive!

This is a complex area of estate planning and you should seek expert advice. If you would like to discuss this or any other element of estate planning contact Cyril Rose

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