Supporting charity and reducing IHT – a match made in heaven

28 September 2016
 

As a result of rising house and share prices, the amount of inheritance tax being paid has never been higher. Statistics revealed by the HMRC show that Inheritance Tax receipts for 2015-16 were around £4.7billion – an increase of 22% on the previous year. However, with careful planning, this bill does not need to be so painful. The figures show that in 2013-14, 38% of estates worth over £2 million paid no tax as more people used exemptions, such as the inter-spouse exemption, Business Property Relief and the lesser-known charitable gifts exemption, which was introduced in 2012.

David Smith, Director of Financial Planning at Tilney, looks at this relatively new IHT tax exemption, which enables you to reduce the amount of tax you pay upon your death, while funding a cause close to your heart.

“Let’s be honest, very few people who are potentially subject to IHT would choose to hand a large proportion of their estate to the taxman and, not everyone has the backing of a financial adviser / tax adviser to structure their affairs in an IHT ‘friendly’ manner. But, by incorporating a simple bequest to charity in your Will, you can limit the amount of IHT you pay.

“Bequests to charity are exempt from IHT, ensuring that 100% of the gift is received. However, a lesser known fact is by doing so and gifting at least 10% of your ‘net Estate’ (by net Estate that is the value of your taxable Estate less your applicable IHT nil rate band) you can in turn reduce the level of IHT from 40% to 36% on the remaining value of your taxable Estate.

 

Without bequest to charity

With £17,500 gift to charity

Total value of Estate

£500,000

£500,000

IHT Nil Rate Band

£325,000

£325,000

Net Estate

£175,000

£175,000

Gift to Charity

£0

£17,500

Taxable amount

£175,000

£157,500

Inheritance Tax Payable

£70,000 (40%)

£56,700 (36%)

Remaining Estate to beneficiaries

£430,000

£425,800

“This ultimately results in your family / beneficiaries receiving less than they would have originally, but for those with charitable intentions you can effectively gift a significant amount, at only a fraction of the effective cost. In the example above, a gift of £17,500 to charity would reduce the size of the Estate passing to remaining beneficiaries by a mere £4,200. That’s effectively a 316% uplift.

“This is by no means a way of gifting more to your children and is certainly not a tax dodge, but is instead a worthy, not to mention a highly tax efficient method, of gifting to those who really need it.”

To discuss this or any other financial planning topic please contact David Smith on 0191 269 9970/ david.smith@tilney.co.uk

-ENDS-

Important information:

The value of investments, and any income derived from them, can go down as well as up and you may get back less than you originally invested. This press release does not constitute personal advice. Past performance is not a guide to future performance.

Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change. Please note we do not provide tax advice.

About Tilney

Tilney is a leading investment and financial planning firm that builds on a heritage of more than 150 years. The Tilney Group operates under the Tilney brand for Investment Management and Financial Planning and Bestinvest for execution-only investing. We look after more than £22 billion of assets on our clients’ behalf and pride ourselves on offering the very highest levels of professional client service with transparent, competitive pricing across our entire range of solutions.

We offer a range of services for clients whether they would like to have their investments managed by us, require the support of a highly qualified adviser, prefer to make their own investment decisions or want to take more than one approach. We also have a nationwide team of expert financial planners to help clients with all aspects of financial planning, including retirement planning.

We have won numerous awards including Best Fund Platform and Best SIPP Provider at the 2017 City of London Wealth Management Awards; Investment Award – Cautious category in the Private Asset Management Awards; and Stockbroker of the Year, Execution-only Stockbroker of the Year and Self-select ISA Provider of the Year 2015, as voted by readers of the Financial Times and Investors Chronicle. We are pleased that our greatest source of new business is personal referrals from existing clients.

Headquartered in Mayfair, London, Tilney Group employs over 1,000 staff across our network of offices, giving us full UK coverage, and we combine our award-winning research and expertise to provide a personalised service to clients whatever their investment needs.