An inheritance tax rule is being hailed as a “game-changer” in estate planning, as it offers a significant opportunity to reduce families’ tax bills and support charitable causes.
Under current inheritance tax laws, estates valued above the £325,000 threshold are typically taxed at 40 percent.
However, as Ben Rogers, a chartered financial planner at Equilibrium Financial Planning, explains, there’s a way to lower this rate to 36 percent by making charitable donations.
He said: “If you leave at least 10 percent of your net estate to a qualifying charity, you can reduce the inheritance tax rate from 40 percent to 36 percent.
“This not only eases the tax burden on your estate but also allows you to make a meaningful impact by supporting the causes you care most about.”
To benefit from this reduction, it’s crucial that people specify the charitable donation clearly in their will, including the full name of the charity.
Mr Rogers added: “It’s important to also keep in mind that the donation must meet the 10 percent threshold of your net estate.”
He warned: “Be careful. This is calculated as the amount above the available nil rate bands of £325,000 per person but does not include the Residential Nil Rate and allowance.”
If a person’s estate is close to meeting this threshold, Mr Rogers suggested they may want to adjust their will to ensure the donation qualifies. Alternatively, beneficiaries can increase the gift through a deed of variation within two years of a person’s passing.
Rogers emphasised the importance of balancing charitable giving with the needs of beneficiaries. He said: “Ultimately, the goal is to fulfil your wishes regarding your estate while also making a positive contribution to society.
“Given the nuances of inheritance tax and estate planning, seeking professional guidance is highly recommended.
“With the right planning, you can effectively manage your estate’s tax liability and leave a lasting legacy that reflects your values.”
