Inheritance tax changes could reduce number of charity legacies, Remember A Charity warns

Up to 1,200 fewer people could be donating annually to charity in their wills as a result of a new inheritance tax allowance introduced this week, the legacy consortium has said

Legacies: possibly affected by inheritance tax reforms
Legacies: possibly affected by inheritance tax reforms

Changes to inheritance tax allowances could see up to 1,200 fewer people donate to charity through their wills each year, the legacy consortium Remember A Charity has claimed.

The new inheritance tax framework, which will be introduced this week and was announced at the 2015 summer Budget, implements an additional new "nil-rate" band of £100,000 when property is passed on to a direct descendant, and was introduced to make it easier to pass on the family home without a tax charge.

The nil-rate band is in addition to the existing £325,000 inheritance tax threshold, meaning that a couple would have a tax-free allowance of £850,000, rising to £1m by the end of 2020/21.

But Remember A Charity said in a statement that the new nil-rate band could reduce the number of people who can benefit from tax incentives for charitable giving.

There is currently a tax break for people who donate at least 10 per cent of their estates to charity, with the rate of inheritance tax paid on their estates falling from 40 per cent to 36 per cent as a result.

Remember A Charity said the new allowance meant there could be less incentive for people to make charitable gifts in their wills, and these changes could lead to as many as 1,200 fewer people including charities in their wills each year.

Despite this, Remember A Charity said, there were some positives in the changes, notably that the nil-rate band lowered the net value of an estate, which meant it might cost less for people above the inheritance tax threshold to access the reduced 36 per cent rate by giving to charity.

Rob Cope, director of Remember A Charity, said: "Tax breaks are a natural entry point for solicitors and will-writers to raise the option of charitable giving during the will-writing process. But with the tax changes our concern is that fewer people will be aware of their charitable options, which will be a real threat to legacy giving.

"It makes it all the more important that we find other ways to put charity front of mind when people are writing wills. This means engaging more closely with financial advisers and government, emphasising the importance of legacy giving and the need for greater fiscal incentives such as VAT-free charitable wills."

According to HM Revenue & Customs, the nil-rate band will increase by £25,000 a year until the end of the 2020/21 financial year, after which it will increase in line with the Consumer Prices Index.

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