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Govt to introduce 10% IHT charity deal

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The Government will introduce a 10 per cent inheritance tax discount for estates leaving 10 per cent or more to charity.

The reduced rate of IHT, which will be discounted from 40 per cent to 36 per cent, is designed to encourage charitable giving and will apply from April 6, 2012.

Estates valued at £325,000 or more incur an IHT charge.

Independent consultant Colin Jelley calculates that, under the current rules, if an estate valued at £425,000 made a £10,000 charitable gift, the estate, if taxed at 40 per cent, would pass £379,000 to the family.

Under the new rules, the family receives £382,600, an additional £3,600.

On the same basis, families would receive £385,000 where no charitable gift was given. Osborne said in his Budget speech no beneficiaries would be better off under the plans.

Jelley says: “I think the move will certainly improve charitable giving because the costs to the family will be substantially less as a result of the changes than they would otherwise have been.”

But Contact Law will writing and probate solicitor Haroon Rashid does not feel the Budget discount move will trigger more charitable gifts.

Rashid says: “For those people who take their social responsibilities seriously, the move will be welcomed. However the problem is, will a 10 per cent inheritance tax relief actually encourage people who are not keen charitable givers to leave money to charities in their wills? The stark reality is probably not.

“The issue is the majority who have not thought about leaving part of their estate to charity are unlikely to change their minds just because doing so comes packaged with a tax break.”

Aifa policy director Andrew Strange says: “Moves to encourage charitable giving, including potentially reduced inheritance tax, mean it will play an even greater part in financial planning.”

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Readers' comments (1)

  • The example assumes that the 10% applies to the taxable part of the estate rather than to the whole estate. Are you sure about that?

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