Charitable giving

22 / 06 / 2021

There is no question that the Covid-19 crisis has hit the charity sector hard and as the country emerges from “lockdown” restrictions, it will be interesting to see how the pandemic has impacted people’s ability and willingness to give to charitable causes.

Many people choose to support charities in their Wills, whether this be a specific gift of cash or property to a named charity, or a share of the residuary estate. Usually testators do so because they wish to support a cause that is personal to them, but charitable giving also offers certain tax incentives. Any gifts to charity under a Will are free of inheritance tax (“IHT”), otherwise payable by the estate at a rate of 40% (after any available reliefs and exemptions). Further, if at least 10% of the net estate is left to charity, the IHT payable on the whole chargeable estate will be 36% rather than 40%, as well as the charitable gift itself being free of IHT.

The calculation to establish whether the reduced rate is available can be complicated, and there are various factors to consider, not least the impact on the other beneficiaries under the Will, so careful drafting of the Will is required.

The inclusion of charities as a main beneficiary can sometimes cause issues if the charity is included at the expense of a family member and without there being “reasonable provision” for those reliant on the testator for financial support.

If part or all of an estate is left to charity, we suggest that the testator discusses this with family members during their lifetime and we can prepare a clear note of the discussions and rationale, should this be required later. Any record of support given to charities during the testator’s lifetime will assist in providing evidence of a connection with such charities. Where disputes are possible, a testator could consider naming an independent or professional executor to ensure the estate is administered on an impartial basis.