Recent and upcoming Inheritance Tax (IHT) changes are set to significantly increase the number of estates facing a bill.
In the Autumn Budget 2024, the chancellor announced that thresholds would remain frozen until 2030, and that from 2027 inherited pensions would form part of an estate for IHT-calculation purposes.
According to Today’s Wills and Probate, the Office for Budget Responsibility (OBR) has estimated that the proportion of estates facing an IHT bill will almost double by 2030.
However, charitable gifts are exempt from IHT, and estates that donate 10% or more of their net value can qualify for a reduced IHT rate, from 40% down to 36%.
All of which appears to have prompted a sharp increase in demand for estate planning advice, with predictions that charitable legacies will rise as a result of the changes.
Read on to find out more about what the latest IHT legislation could mean for your estate, and whether charitable giving could have the dual benefit of assisting your favourite charity and mitigating your IHT liability.
Changes to IHT mean that, from 2027, inherited pensions will be included in an estate
IHT is applied to estates valued above the threshold (known as the “nil-rate band”) of £325,000. This threshold can be increased to £500,000 if you leave your home to your children or grandchildren (thanks to the £175,000 “residence nil-rate band”).
And if you leave everything above the £325,000 to your spouse, civil partner, a charity, or a community amateur sports club, there’s normally no IHT to pay. The current rate of IHT is 40%, which is applied only to the portion of your estate above the thresholds.
Already it can seem complicated. But when we add in the latest announcement that, from April 2027, inherited pensions will be included as part of an estate, it starts to get even more complex.
Talking to us about estate planning can help you to navigate some of these intricacies. And it seems that this will become more important than ever in the light of the latest government announcements.
According to legacy awareness fundraiser Remember A Charity:
- 92% of professional advisers believe estate and tax planning will become even more important
- 60% are already receiving more requests for advice
- 65% say charitable tax incentives will become even more important to their client base
- 62% think more people will consider leaving a gift to charity.
At Fingerprint, our team of experts agree, which is why we’re on hand to help you.
Gifting to charity is a generous way of supporting an important cause
Leaving a gift to a charity, or several charities, in your will is clearly about much more than offsetting your IHT liability. It’s your way of showing appreciation, giving something back, or supporting a cause that’s meant a lot to you throughout your life.
There are a few different ways you can leave a gift to charity in your will:
- Donating a fixed amount
- Bequeathing a specific item
- Leaving what remains once other gifts and commitments have been covered.
You may already have a favourite charity in mind. Alternatively, you could search the database on the Charity Commission for England and Wales, which will help you make sure you’re picking a reputable charity. Here, you can see if there are any concerns about the way the charity operates, such as any investigations past or pending.
We’re already seeing a rise in charitable giving. The Remember A Charity research has discovered that an average of 21% of wills written through a solicitor or will writer now include a donation. This rises to 24% amongst those who always reference charitable legacies with clients.
Even if you’ve already written your will, you can revisit it and make additions – codicils – or rewrite it. It’s always a good idea to treat it as a fluid document, as life changes and events could alter your wishes. Advice from Gov.uk is to review your will either every five years or after any major life event, such as marriage, divorce or having a child.
So, it’s never too late to consider charitable giving. In light of the latest announcements, it could even prove to be a win-win situation.
Get in touch
If you’d like to find out more about IHT, charitable gifting in your will, or talk to us about any aspect of financial planning, please get in touch by emailing hello@fingerprintfp.co.uk or calling 03452 100 100.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
The Financial Conduct Authority does not regulate estate planning, tax planning, or will writing.