Being Charitable: A Strategy to Reduce Your Inheritance Tax Bill

Inheritance tax (IHT) rules in the UK can have a significant impact on the value of assets passed on to your loved ones. Currently charged at a rate of 40% on assets above certain thresholds, IHT can take a substantial chunk out of your estate. However, there are legitimate means to minimise or even eliminate the potential IHT liability.

inheritance tax rules

Let's first understand the basic IHT rules. Each individual has a "nil rate band" of £325,000, which means that up to this amount of assets in your estate will not be subject to IHT. For married couples and civil partners, any unused portion of the nil-rate band can be transferred to the surviving partner, potentially doubling the tax-free allowance to £650,000. Additionally, if you leave your main residence to direct descendants (children, adopted, fostered, or stepchildren, and grandchildren), you are entitled to a residence nil rate band of £175,000 each.

legacy giving

One effective strategy to reduce IHT is legacy giving, also known as charitable bequests, which involves designating a portion of your assets, property, or financial resources to a charitable cause or organisation upon your death. This deliberate and thoughtful decision is typically included in your Will, ensuring that your values and passions continue to make a difference even after you are gone.

Not only does legacy giving help the causes you care about, but it can also reduce the IHT burden on your estate. When you donate at least 10% of your estate to charity, the rate of IHT on the remainder of the estate (above the thresholds available to you) is reduced from 40% to 36%. This reduction can have a significant impact on the tax your loved ones will have to pay from your estate, making legacy giving an integral part of inheritance tax and estate planning.

next steps

If you're interested in learning more about legacy giving or other strategies to mitigate your IHT burden, don't hesitate to get in touch with us. As experts in later life financial advice, we can help you gain clarity and confidence in your inheritance tax and estate planning. Call 0117 3636 212 or email office@haroldstephens.co.uk to arrange a relaxed chat about your circumstances or to request a complimentary inheritance tax review.