You may be considering writing a Will or reviewing one you already have. Why not consider leaving a gift to charity as an act of generosity even after your death?
The Bible tells us that our first responsibility is to provide for our dependants (1 Tim 5:8), however we might be able to consider doing more than that. Leaving a charitable gift under your Will offers an opportunity to make a substantial donation to a cause you care about. A legacy might be an expression of thanks to God for an organisation which has played a significant role in your life or in the lives of your family.
Given the cost of living, making lifetime gifts has become much more limited for some. So, it is likely that the distribution of our estate (the belongings and assets we leave behind) will be the largest single financial decision we ever make. We would encourage you to consider the opportunity to honour God, continue to enable Kingdom work and steward what he has entrusted to you well, not just in life, but also in death.
Will your Will achieve what you want?
Writing a Will is not necessarily complicated but does require careful, unambiguous wording and certain legal formalities to be followed in preparing and executing it. It is also wise to be aware of the tax implications of the legacies you leave, so that your estate is as smooth to execute and as effective as you can make it. Even though ready-made Wills can be purchased cheaply, we would strongly recommend that you use a suitably experienced solicitor or qualified Will writer. You may be able to make a free or discounted will using Free Wills Month, Will Aid or a scheme run by a charity you support.
Your Will and Inheritance Tax
Many estates will be required to pay Inheritance Tax from the assets before paying out legacies. By being informed of how Inheritance Tax works and how it will be charged you can ensure that your estate pays what is due to the Government and that the legacies you wish to leave are not unexpectedly reduced.
An estate with a value above the ‘Inheritance Tax threshold’ (‘nil rate band’) will be charged Inheritance Tax. Inheritance Tax is payable at a rate of 40% on the amount which exceeds any available nil rate bands and residence nil rate bands.
For the 2021/2022 tax year until the 2025/2026 tax year, the nil rate band is set at £325,000 per estate. For married couples and those in a registered civil partnership, this threshold can effectively be doubled on the second death to up to £650,000, as any unused threshold from the first partner’s death can be transferred to the surviving partner.
There is also a residence nil rate band which may apply where a person leaves their home to their direct descendants. This is a relatively complex area, for more information, please see the government advice.
Exemption for charitable gifts
There are a number of exemptions from Inheritance Tax. The main exemptions are for gifts to a spouse or civil partner, and gifts to charity.
Charitable Gifts: If you leave a gift or gifts to a UK charity in your Will, the value of those gifts is exempt from Inheritance Tax. This is achieved by deducting the value of the gift(s) from the value of your estate.
Reduced 36% rate for Inheritance Tax if you tithe your estate to charity: If 10% (or more) of your net estate is given to charity, not only will that gift be exempt, but any taxable part of the estate that remains, after the exempt amount is deducted, will be taxed at the lower rate of 36% (a 10% discount to the ‘normal’ rate of 40%).
In its simplest form (where your assets are held solely by you and not in trust or jointly) the relief works as follows:
- Add up the estate assets then deduct any debts, liabilities, reliefs and exemptions (including the charities’ exemption) that apply.
- Deduct the available nil rate band and, if applicable, any available transferable nil rate band from a deceased spouse or civil partner. Do not deduct any residence nil rate band or transferable residence nil rate band. This is the ‘chargeable estate’. If this figure is nil or negative, stop here: there is no Inheritance Tax to pay!
- Add back in the value of the donation to charity – this result is the 'baseline amount'.
- Divide the baseline amount by 10.
- Work out whether the charitable donation is more than the result in step 4.
This is a technical area and it is important to draft the Will correctly to achieve the 10% gift; for more in depth explanation and examples see our Briefing Paper. We would also encourage your Will drafter to use the STEP model clause recognised by HMRC.
Leaving a legacy of generosity
Stewardship can make it easy for you to remember charities in your Will. Your Will can include just one gift to Stewardship, rather than separate gifts to different charities. You can then complete an ‘Expression of Wishes’ to let us know about your legacy and tell us how you would like it to be used.
In your Expression of Wishes, you can:
- Ask us to distribute your legacy gift to your favourite causes (immediately or over a period of time);
- Appoint a friend or family member as your successor to request donations from your legacy fund to causes nominated by them; or
- Entrust your legacy to Stewardship to distribute at our discretion.
Leaving a legacy to Stewardship offers flexibility, as you can make changes to your Expression of Wishes at any time without the trouble and expense of amending your Will. It also offers discretion: your Will becomes a public document after your death, whereas your Expression of Wishes remains private and could even request that any donations from your legacy are made anonymously.
As Stewardship is a registered charity, your estate will benefit from the Inheritance Tax charities exemption and potentially also from the reduced rate of Inheritance Tax outlined above.
For more information about leaving a legacy to Stewardship, please see our Guide to Leaving a Legacy.
Stewardship may provide general guidance about charitable giving for information purposes only. We do not offer tax, legal or investment advice and you are encouraged to seek advice from a qualified professional on your specific situation.
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