Leaving money to charity? Let the taxman help too
With the ever popular Comic Relief seeking to raise another record-breaking total to beat the £102m raised in 2011, it would seem that British enthusiasm for giving has not been dampened by the economic downturn. Indeed, a new survey for Towry, the wealth adviser, shows that over half (53%) of all British adults say they currently donate to charity, a figure that rises to nearly two-thirds (63%) of those aged 55 and over.
On average, for those who give to charity, UK adults donate 2 per cent of their annual income to charity, with one in eight (12%) giving 5 per cent of their income or more. Over half (55%) of those who donate are happy with the amount they give to charity each year, while some 11 per cent (2.9m British adults) would like to give more this year than in the past few years, in spite of the challenging economic conditions - compared to only 6 per cent who would like to reduce their giving. One in six British adults (16%) who say they donate to charity said they have no idea how much money they give to charity each year, while one per cent say they give money in order to reduce their tax burden.
Many people decide to leave a portion of their estate to charity. Ahead of the new tax year on April 6th, Towry's head of advice policy, Kate Turner offers five top tips on the things you need to consider if leaving money to charity:
1. Take advantage of inheritance tax relief
"At the start of the current tax year last April, the inheritance tax rate was reduced from 40% to 36% if you leave at least 10% of your net estate to charity (the net estate is broadly what you leave minus inheritance tax reliefs and the nil rate band).
"If you are liable to inheritance tax and you are considering leaving at least 4% of your net estate to charity, you should consider increasing this to 10% as your family would be no worse off. This is because the savings on inheritance tax made will counteract the increased amount you are giving to charity. And the charities you want to benefit would obviously be better off too.
2. Review your will
Whilst the above sounds straightforward, sometimes the rules operate in a complex way. If you intend to leave money to charity you should review your Will, to make sure that the costs associated with settling your estate (probate costs) do not eat into the funds available.
3. Think of a deed of variation
"If someone has died within this tax year (on or after 6 April 2012) without changing their Will to benefit a charity, it's not too late to benefit from the new reduced tax rate on charitable gifts which is now 36 per cent. A solicitor can put things right through a simple deed of variation if this is done within two years of the death.
4. Consider lifetime giving
"Leaving money to charity in your will reduces inheritance tax, but lifetime giving may be more tax-efficient. Your chosen charities benefit earlier and the Government tops-up your donation through Gift Aid if you are a taxpayer. You might also find this more personally rewarding, by seeing the benefits of your charitable giving while you're still alive.
5. Think about donating your pension fund
"Leaving your surplus pension fund to charity can be even more tax-efficient. Funds paid as a lump sum to a charity are free of tax; lump sums paid to your family could be subject to a 55% tax charge. So it may be better to use your pension to make charitable gifts, even if your estate is then subject to the full 40% inheritance tax rate.
"It's important for people to think about what they want to do with their wealth and how they want to use it. Many people want to make some provision for charitable giving either now or in the future but don't know the best way to do this. A good financial adviser will help people understand their finances and their goals and objectives so they can make the right decisions about their financial future."