Budget announces further Inheritance Tax Relief
George Osborne's latest Budget revealed that £2.7 billion will be generated by the Treasury this tax year (2010/11) in Inheritance Tax (IHT) alone. However they have also introduced a further tax planning opportunity in the form of charitable gifts.
Where a person's estate exceeds the IHT threshold of £325,000 (the Nil Rate Band) the excess is charged at 40%. For example if your estate is valued at £1m, the sum of £675,000 is liable to IHT giving rise to a tax liability of £270,000. However, any charitable gifts fall outside of your estate for IHT purposes.
For example on an estate worth £1m where the Will contains a charitable gift of £100,000, the IHT is calculated as follows:
Value of Estate £1,000,000
Less: Value of Charitable Gift (£ 100,000) and Nil Rate Band Allowance (£ 325,000)
Net Estate liable to IHT £ 575,000 @ 40% £230,000
Inheritance Tax is often seen as a voluntary tax, that's to say there are methods of reducing or even eliminating the amount you pay. The latest Budget has introduced a further tax planning opportunity in the form of charitable gifts. The latest concession provides that if you leave 10% of your estate to charity the government will take 10 per cent off your Inheritance Tax rate, that's to say reduce it from 40% to 36%.
Following the same example it can be seen that this allows an IHT saving of £23,000.
Value of Estate £1,000,000
Less: Value of Charitable Gift (£ 100,000) and Nil Rate Band Allowance (£ 325,000)
Net Estate liable to IHT £ 575,000 @ 36% £207,000
How to take advantage of the relief
To qualify for the relief you are required to make a Will that leaves 10% of your estate to Charity. If you are a married couple it is possible to prepare your Wills so that the charitable gift takes effect on second death only. For more information or to make/amend your will please contact us.
