Donating to charity has always been a trait of the altruist. But when it comes to donating to charity in your Will, there is more than just a good deed to be had.
Sometimes, all it takes to bring out a more charitable side of someone is a generous tax exemption scheme. And this is exactly what the UK government has been able to achieve, as legacies now account for nearly £2.24bn of total charitable contributions in the UK.
Ways you can donate to Charity in a Will
Leaving gifts for charity in a Will has proven to be an effective way of reducing the tax burden, while simultaneously doing something good for society. It is, after all, a combination that we do not generally come across in most of our endeavours.
Below, the team at Legacy will take you through the various aspects of leaving behind gifts in a Will for the charitable organisation of your choice.
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Different Types of Legacy
There are three types of legacies that you can create, which allow you to leave behind gifts for charity in your Will. They are as follows:
The pecuniary type of legacy is the most commonly adopted form of legacy. It is also the simplest which is also the reason why it is the most common.
In this type of legacy, the beneficiaries are entitled to receive a cash amount as a gift from the testator. It requires the testator to specify in their Will that he or she wishes to leave X amount to a particular charity.
The responsibility of ensuring that the designated funds are given to the rightful charity lies with the executor of the Will. That is why writing a Will without the support of legal expertsis always advised against.
When a testator intends to leave behind physical assets such as shares or property to a particular charity, the type of legacy that would most suit their requirement is the specific Legacy.
A legacy is known as a residuary legacy when the remainder or the whole of the estate is left to charity after every gift has been given away to non-charitable beneficiaries.
Things to Remember
Your Will should include accurate details of the charity you are making donations toward. Details such as the contact information, address and the registered charity number should be clearly specified to avoid any possible dispute over the validity of the request in your Will.
Inheritance Tax Benefits
According to the laws of Wills and Probate, only the spouse of the testator is eligible to inherit the legacy without paying any Inheritance Tax.
Any other beneficiary mentioned in the Will shall be required to pay inheritance tax, if the gifts are evaluated to be above the threshold of £325,000. The gifts received above this threshold will be taxed at the rate of 40%.
However, there are many tax benefits of leaving behind gifts to charity in the Will. The biggest advantage is that if you have any asset that makes your legacy cross the threshold of £325,000, you can donate it to a charitable cause and pay nothing as inheritance tax.
The assets given away to a UK-established charity are not included as part of your estate. This gives you the liberty to completely avoid inheritance tax, save a lot of money and also do good things for society, all at once.
To give you an estimate of how much charities can benefit from this relief, here is a statistic. Around £840m was claimed back by charities as inheritance tax relief in the financial year of 2016-2017 alone.
There is also another benefit that has been given with regards to inheritance tax. After any exemptions, if you decide to leave behind at least 10% of your estate to charity, it brings down the amount of inheritance tax due from 40% to 36%. It may not seem like such a big difference in terms of percentage, but it could end up being the difference of thousands of pounds.
Gift Aid Scheme
In order to encourage the practice of donating to charities through Wills, the UK government has come up with an ingenious scheme, known as gift aid. It allows the charity to claim back the tax paid on the donation amount.
Usually on every pound that you donate, your estateis required to pay 25p as basic-rate income tax. The gift aid scheme empowers charities toclaim back this tax. Along with charitable organisations, even community amateur sports clubs are entitled to the benefits of this scheme.
This means they gain an additional 25p for each £1 that they receive in donations. The relief that is given here to the testator is that they can increase the amount they give away to charity without spending a penny more.
At least £5bn has been gifted to charities through the Gift Aid scheme and this accounts for nearly 50% of the total contributions made to charitable organisations.
Also according to a research, charities have been able to claim back and have received a boost of £1.5bn from the Gift Aid donations received from individuals.
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How to Go About It?
The donor is simply required to sign a declaration form in order for the charity to claim the benefits. A Gift-Aid tick box is provided in the form that must be checked at the time of making the donation.
According to a recent study, out of all nations in the European Union, the UK was the nation with the highest charitable contributions. The total amount donated to charity in the UK stands at a whopping £9.7bn.
However, this statistic alone shouldn’t make you arrive at the conclusion that enough is being done in this sector. Whilst there are thousands of people donating to charity when they die, they are still plenty who intend to do so but never actually turn their intentions into reality.
So, if you are genuinely considering donating to charity when you die, all you need to do is state so when writing your Will.If you intend to donate more than 10% of your estate to charity, the amount of inheritance tax you’ll need to pay will be reduced.
You have the option to donate either a fixed monetary amount, items or to keep things simple, you can leave everything from your estate once other gifts and considerations have been made.
To find out more about how you can donate to charity in your Will, get in contact with us and we will ensure you have everything you need to make it happen.