The plan was announced in last year’s Budget statement. Chancellor George Osborne said that if at least 10% of the estate is left to charity, IHT will be cut by 10%.This would reduce the rate from the standard 40% to 36% for qualifying estates.

It’s hoped that the measure will encourage more people to leave money to charity in their wills.

HM Revenue & Customs has just completed a consultation and said the proposal was widely welcomed by the public, tax planning professionals and charities.

Following the consultation, the Government has confirmed that it will introduce a measure in the Finance Bill 2012 which will introduce a lower rate of IHT of 36% where 10% or more of a person’s net estate
is left to charity.

The measure will apply to deaths on or after 6th April 2012. The 10% charitable legacy will be based on the value of the estate after deducting IHT reliefs, exemptions and the nil-rate band.

The public consultation has also led the Government to amend its original proposal as outlined in last year’s Budget statement.

It highlights the following key refinements:

  • All assets within an estate will be eligible for the reduced IHT rate if the
    charitable legacy from that estate, or part of that estate, passes the 10%
  • For the purposes of this measure the deceased’s estate will be divided into 3 parts or ‘components’, which are broadly: assets that would pass to someone under a Will or intestacy (the free estate), assets which would pass automatically to a surviving joint owner (survivorship property), and assets in a trust (settled property).
  • The 10% test will be applied to each component separately and the reduced IHT rate will be applied to those components that pass the test unless an election is made to opt out.
  • Where a charitable legacy exceeds the 10% threshold for its own component, it will be possible to aggregate other components by election, and to apply the 10% test and reduced rate to the combined components.

The inheritance tax threshold is currently £325,000. In 2010, IHT was paid on more than 15,000 estates in the UK.

Many people may wish to reconsider their will and their inheritance planning now that the changes have been confirmed.

Please contact us if you would like more information about wills and inheritance tax planning.

Share this...