Discussing charitable giving with your clients

Discussions about charitable giving will often arise as part of estate planning, especially when clients wish to consider succession (ie who gets what when they die) and tax mitigation, in particular inheritance tax and capital gains tax.

It is possible to give to charity in a very tax efficient manner. Lifetime gifts to charity, whether it be of cash, property or other assets, are free from both inheritance tax and capital gains tax. A Gift Aid claim would also be possible if your clients are taxpayers.

If your clients need (or wish) to retain their capital during their lifetime, gifting in a Will might be an attractive option, to be combined with lifetime gifts if they can afford both. Your clients can choose to leave fixed sums and the charity would receive the whole of these gifts, again with no inheritance tax or capital gains tax payable from the estate.

Gifts to charity under a Will are, in themselves, free from inheritance tax. As an extension of this, your clients also have the option of making the most of the charitable giving relief which provides for a reduced rate of inheritance tax, from 40% to 36%, if they give 10% or more of their estate to charity (please note that the calculation of the 10% is complex and specialist advice is needed for wording the Will so that the relief applies).

Top tip from the pros – If your clients are already including a gift to charity in their Will equivalent to 6% of their estate, then increasing this to 10% will make no difference to the amount that their non-charitable beneficiaries will receive. Those non-charitable beneficiaries (e.g. their children, other family or friends) will receive the same benefit, or more of a benefit, as they would have received if your clients left the gift to charity at 6% . The benefits are that your clients’ chosen charity (or charities) will receive an extra 4% of the estate and HMRC will receive that much less in inheritance tax. The rest of the estate will then benefit from the reduced 36% rate of inheritance tax – an added bonus!

If you know that your clients would like to make use of the 10% to charity but they are undecided about which charity (or charities) to benefit then the use of a discretionary trust would give flexibility and they could then write a side letter of wishes that could be updated over time, and which could include updates to their charities if needed.

If no provision for charity is included in a Will then it is possible, post death, for the beneficiaries of the Will to enter into a Deed of Variation to redirect some (or all) of their own inheritance to charity. There are strict time limits to adhere to when putting in place a Deed of Variation if it is to be used to change the inheritance tax position. A Deed of Variation can also be used to vary entitlement when a person dies leaving no Will (known as an ‘intestacy’).

A conversation with Sussex Community Foundation about how they would be able to help would not go amiss here!









Laura Colville, Senior Associate Solicitor in the Lifetime and Estate Planning team at Irwin Mitchell LLP

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