Should I Give To Charity In My Will?
Deciding to give to charity in your will isn't simply about giving to a worthy cause; it can also have an implication on the tax you pay. The decision to give to charity or not will be up to you but there are some important points to consider first.
Choosing a charity
It could well be that you already have a specific charity in mind that you love and have supported throughout your life. As you don’t want to have any ambiguity on your will, it’s wise to mention the charity’s registration number as this can’t be contested.
If you don’t have a specific charity in mind then you can leave the decision to others. You can specify in your will that you want a specific amount donated to charity and ask that trustees of the will decide where it should be spent.
Tax benefits of giving to charity in your will
An extra incentive of giving to charity is that it will reduce the amount of income tax that you’ll need to pay. While it can get a lot more complicated, at the basic level the inheritance tax threshold is £325,000 and anything over that is taxed at 40%.
Anything that you give to charity will come out of your estate before inheritance tax is considered. For example, if your full estate is £350,000 and you give £50,000 to charity then your loved ones aren’t going to pay any inheritance tax. This will reduce the amount they receive but it means a charity gets an amazing donation and they don’t have to give the government any money. In this example, without the charitable donation, the taxable amount would be £10,000 (40% of the £25,000 over the threshold).
Another key consideration is that any charitable gift at 10% of more of your estate will reduce the inheritance tax amount from 40% to 36%. If you’re already considering giving a sizeable sum to charity then it makes sense to push it up over 10% of the tax benefits.
Using the percentages
Let’s use an example when the estate is worth £500,000 and therefore the amount after the tax allowance(£325,000) is £175,000.
In this scenario, if you left 5% to a charity that would be £8,750 and the taxable amount would be £166,250. At 40%, this is £66,500 and that leaves £99,750 to your loved ones.
If you left 10% charity, which would be £17,500 with the taxable amount then being £157,500. As this would be taxed at 36%, that’d be £56,700 in tax and that leaves £100,800 to your loved ones.
As you can see here, if you’re already thinking about giving to charity, your loved ones can actually be left with more if you increased your donation amount to 10% or more.
What can you leave to charity?
Cash - When it comes to charity, many people think about simply leaving a cash gift. It can be the easiest way to make a donation as you simply stipulate in your will the amount and who it’s going to be left to.
Asset – Another way to give to charity is to gift them an asset. This can be any asset you choose such as property and this will be removed from your estate for the purposes of inheritance tax.
Residuary estate – If you’re not sure how much will be left over after expenses, then you can choose to give a charity a percentage or set amount of the estate after everything else has been settled.
Specifying charity action
If you want to leave a lasting legacy, then you may wish for a charity to do something specific with the money that is left behind. In my area, a lady left money in a will that was dedicated to constructing a children's play park.
While this can be a wonderful thing to do, you should speak to the charity beforehand to explain your vision and what your money can do. That way, the charity can advise you if whether it’s an efficient use of funds and also work with you to achieve your plan.
So, should you give to charity?
As the famous saying goes; charity starts at home. It’s the natural instinct of anyone to look after their family first. If you only have a small amount left in your will then it makes sense to divide it up between your immediate family members.
That being said, giving money to charity in your will is a wonderful legacy to leave behind. As we have seen here, there are some great tax benefits you can receive from giving your money away and that can give you extra incentive to do so.
Ultimately, the decision is yours. You shouldn’t feel guilty about not giving to charity, especially if you’re putting your family first. If you want to give your money away then be mindful regarding the laws surrounding inheritance tax to maximize the amount the charity and your loved ones would receive.
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