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Leave a Gift to Charity to Reduce Your Inheritance Tax Bill

As the saying goes, you can’t take your money with you when you die, so it’s only natural that you might want to leave your wealth to those people closest to your heart, such as your children.

But this isn’t the only option open to you, as you can leave your money to a cause that means a great deal to you – and this can have significant benefits when it comes to inheritance tax.

Any gifts you make to charity are exempt from inheritance tax, so if you leave everything to a good cause, your estate wouldn’t have to pay it at all. However, very few people take up this option, as many will still want to leave a generous amount to loved ones.

But even in that case, there are still inheritance tax benefits to be had. If you bequeath more than a tenth of your estate to charity, the total amount of inheritance tax the estate pays will be 36 per cent, lower than the standard rate of 40 per cent on everything over £325,000, or £650,000 for a married couple.

Support a Cause You Care About

Donations made from people’s Wills can be a valuable source of income for countless charitable bodies, so if you want to explore this option, it’s worth spending time thinking about what cause or causes matter to you.

If you’re an animal lover, maybe a national or local animal charity could be a good option.

If you or a loved one has struggled with a long-term illness, such as cancer, you might want to donate to a charity that helps others with that condition, or perhaps a hospice that cares for those with terminal illnesses.

You might even want to support a museum or another cultural institution, or maybe a local community group.

The choice is yours, which means that your Will gives you a great opportunity to leave a positive legacy in an area you care about, or say thank you to a charity that has helped you personally or supported a loved one.

Speak to Your Family and Get Financial Advice

Before you write or update your Will with a view to leaving a gift to a charity, it might be worth speaking with members of your family beforehand.

Many of your family members might be hoping or expecting to receive an inheritance from you, so explaining the reasons behind your decision can help to prevent any upset or family disputes further down the line.

You should also consider speaking to a financial adviser if you are thinking of gifting to charity as part of your estate planning, so they can discuss the inheritance tax implications with you.

A regulated, professional adviser will also be able to talk you through other ways of making sure your estate planning is more tax-efficient.

What Can I Leave to Charity?

You can leave either a set amount of money or a particular item to your charity of choice. Alternatively, you can ask the executor of your estate to take care of awarding a set sum to a charity after other costs have been paid out and gifts to family members distributed.

It’s often said that the only two certainties in life are death and taxes, but with careful planning, there’s no reason why you can’t reduce your inheritance tax bill and leave a positive legacy behind. Please don’t hesitate to get in touch with us if you have any questions about making your estate more tax-efficient.

Sources
https://www.hl.co.uk/news/articles/the-benefits-of-leaving-money-to-charity-in-your-will 
https://www.rememberacharity.org.uk/leaving-a-gift/

Charity tax relief plans scrapped

Chancellor, George Osborne has recently scrapped plans to cap tax relief on charitable donations. This follows a warning from charities that they stood to lose a significant proportion of the £1.4 billion of donations on which relief is claimed each year. In addition, Conservative MPs complained that the measure did not fit with the Government’s policy of promoting volunteering through the Big Society idea.

The cap, limiting tax relief at £50,000 or 25% of income (whichever is higher), was proposed in Mr Osborne’s March 21 Budget and was expected to save the Treasury £50-£80 million a year.

Mr Osborne has now written to representatives of the charities sector to tell them he was ditching the cap proposal, while pressing ahead with limits on other income-tax reliefs for the wealthy.

Speaking about the u-turn, the Chancellor said: “I can confirm that we will proceed next year with a cap on income tax reliefs for wealthy people but we won’t be capping relief for giving money to charity.

“It is clear from our conversations with charities that any kind of cap could damage donations and, as I said at the Budget, that’s not what we want at all. So we’ve listened.”

Charities said they were delighted that the Chancellor responded to their ‘Give It Back, George’ campaign, which was supported by more than 1,000 voluntary sector organisations. Sir Stuart Etherington, chief executive of the National Council for Voluntary Organisations (NCVO), hailed the decision as “a victory for common sense.”

The reported £50-£80 million cost of the decision follows the £70 million hit on the Treasury from recent decisions to drop the “pasty tax” on hot snacks such as pasties sold at above room temperature, and to abandon proposed VAT charges on static caravans. These three recent change announcements seem also to have encouraged pressure for further legislative changes, including:

Campaigns against new regulations allowing nests of the endangered buzzard to be destroyed and the birds to be taken into captivity to protect pheasant shoots;
Campaigns against the “conservatory tax”, a proposed requirement to invest in energy saving measures such as insulating lofts and walls when home owners built an extension;
Campaigns from waste companies who are protesting against a massive hike to the landfill tax for some rubble-type waste and grit, which was recently introduced without warning by HMRC

….. as Britney Spears once said – ‘Opps I did it again !!’

Big reductions in charity donations

According to figures from the Charities Aid Foundation (CAF) and the National Council for Voluntary Organisations (NCVO), £9.9 billion in donations to charities in 2008/09 was £1.3 billion less than the amount donated in the previous year. CAF estimated that 774,000 fewer people were gave to charity in 2008/09 and that the average charity giving amount had also shrunk by 10%.

CAF said the recession has reduced charity income from donations while the charities are facing increasing demands for their services. John Low, CAF chief executive said, “the economic downturn is still severely impacting charities, many of whom have had to cut jobs while facing increased demand for their services’’.

Spending cutbacks and reductions in local government and other public services are causing many local Voluntary and Community Sector (VCS) agencies to step up to fill gaps in provision. Many of these are finding it difficult to survive when they themselves are among the first targets for local authority expenditure cuts, whilst experiencing increased competition for funding from sources like the Big Lottery.

In addition, many such charities miss out on hundreds of millions of pounds of potential funding, according to CAF, because donors are failing to Gift Aid their donations. Gift Aid allows charities to reclaim tax on donations, meaning that they receive an extra £28 for every £100 Gift Aid donation. CAF estimates that Charities could raise an extra £750 million per year if all eligible donors gave money using Gift Aid. Too few donors seem to know that by ticking the Gift Aid box or asking their employer if they can donate through their payroll, they can boost the amounts they are giving at no extra cost to them

Source www.cafonline.org

Also see our blog – How to support the work of  local charities

How to support the work of local charities

Many charities working with local communities are being asked or expected to take advantage of the Government led strategy that shifts services and provision away from public services and local authorities and into the local voluntary sector.

A major problem faced by these charities is that whilst they work with volunteers, their core professionalised organisations, and the support they provide, has largely been funded through local authorities, which are all experiencing considerable reductions in Government funding, prompting their own downsizing, cost-cutting and service reduction.

Many local charities are thus caught up in the reduced funding climate and it is clear that as such, the charities being external agencies outside local government corporate businesses, almost always are easier targets for cost cutting.

The anomaly is that whilst so many local charities and community groups are being asked to step up to the plate within the developing ‘Big Society’, they are at the same time needing to downsize themselves or are even being wiped out through insolvency. Another problem that local registered charities face is that their work is local and their voice is largely unheard as the major national charitable bodies develop and establish powerful campaigns and appeals for support and donations.

There is a need for local businesses and individual donors to make sure that the funding needs of local charities and community organisations who address local problems are not being overlooked, under their very noses!

Gift Aid is the main vehicle for tax efficient giving of any donation whether large or small, regular or one-off to charities – irrespective of their size.

We know what Gift Aid giving does for taxpayers, with donors able to ensure that their chosen charities can reclaim the basic rate of income tax on all their donations, equal to 25% of the amount donated. As an added boost for donors, higher rate taxpayers can claim for themselves the difference between basic and higher (currently 20%) or additional (currently 30%) rates of tax against their own income tax liabilities, reducing further the net cost of the donation. In addition, there are a number of other ways of donating or providing support in kind for local charities.

Charities need investment strategies

The Voluntary Community sector in any part of the UK is made up of a great number of agencies and organisations, of all sizes and with a wide variety of functions and purposes. Most are constituted through the Charities Commission and are directed and managed within the terms of their registration with that national body.

Whilst the majority of local charities do not depend on funding from the state, either directly from Central Government or through local authorities, up to 30% in any area do. Most of these are the professionalised charitable organisations, with paid staff and workers who engage in the delivery of local services and opportunities alongside the statutory and private sectors. This is a significant business sector with considerable assets and expenditure. For example the umbrella voluntary agency, in an average sized borough or district, organising support for volunteers and voluntary bodies, may well have an annual turnover of anything between a quarter and a million pounds.

The Coalition Government, with ideas like the “Big Society,’’ seems to be seeking a bigger role for the voluntary community sector nationally. There is a real short-term challenge for these charitable agencies and organisations, to ensure that through 2010 – 2012, they survive to fulfil the expanded future role which the Coalition Government seems to be anticipating.

In these turbulent times, the directors and boards of trustees of such charities are faced with making decisions which both ensure financial survival and meet the Charity Commission’s principal requirements of prudency and due diligence. Most of these charities have reserves (a Charities Commission requirement against insolvency) and at any one time, funds to invest.

Professionalised voluntary and community organisations with physical assets, payrolls and service contracts, are required to seek the services of auditors and to direct and manage their finances effectively, but investment of income and a savings strategy, do not often feature significantly on the finance section of the agenda of board meetings. Having significant sums of money in current accounts or low interest savings accounts can be accepted without question.

There is evidence to suggest that the directors and trustees do not always make the best use for their charity of their investments and at this time every penny of interest earned counts! Many need a greater input of professional information and advice to make effective investment decisions, urgently over the next year or so, and equally importantly for a sustainable future.

If you are a charity organisation seeking further information about investments or would like to put in place a investment policy statement, please drop us a line.