Inheritance tax reduction to be linked to legacy giving

Osborne says tax will be charged at lower rate of 36 per cent if more than 10 per cent of the value of an estate is donated to charity

Inheritance tax rate to be reduced
Inheritance tax rate to be reduced

The government will reduce the rate of inheritance tax by 10 per cent in cases where more than 10 per cent of the value of an estate is donated to charity, the Chancellor, George Osborne, announced in today's Budget.

Osborne said the move, under which inheritance tax would be charged at 36 rather than 40 per cent if at least 10 per cent of the total value of an estate was left to a charity, would raise £300m for the sector. He did not specify over what period this would be.

Osborne said the inheritance tax relief was designed so that charities, rather than other beneficiaries, would benefit from the tax saving. It is due to come into effect on 6 April 2012.

"I want to make giving 10 per cent of your legacy to charity the new norm in our country," he said. "Let's be clear: no beneficiaries will be better off, just the charities – to the tune of £300m."

Rob Cope, director of Remember a Charity, said the policy was "fantastic" but was "absolutely not enough to making leaving legacies a social norm". This was because it targeted wealthy people who were more likely to be concerned about inheritance tax.

He said the government should do more to encourage people to write a will that included a charity donation, for instance by suggesting it when people got married or had children.

Seven per cent of the population left legacies to charity, whereas around 75 per cent gave to charity at some point in their life, he said.

The Institute of Fundraising welcomed the announcement, saying in a statement that it "could prove extremely beneficial for charities promoting legacy fundraising".

See round-up of 2011 Budget stories

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