Inheritance Tax: How your “legacy” could reduce your IHT cost to only 36% if you act now.
INHERITANCE TAX is a levy that many people will desire to avoid, and by taking action, individuals may be able to reduce their tax responsibilities.
The current rate of inheritance tax (IHT) is 40% on the value of a person’s estate beyond a certain threshold when they die. Many Britons seeking to pass money or assets down to their loved ones will undoubtedly seek legal ways to avoid the charge. Charity gifts are one way a person might reduce their IHT cost, with legacies accounting for 16% of all charitable revenue.
Hargreaves Lansdown’s personal finance analyst, Sarah Coles, weighed in on the topic.
“Legacies are a lifeline for charities, and leaving money in your will will not only give you a nice glow from aiding a worthy cause, but it will also give you a boost from knowing you could reduce your inheritance tax bill,” she said.
“There are only a few things you should do to avoid the hazards of legacy giving.
“The epidemic handed charities a triple blow: they needed to help more people, they could generate less money through events and charity shops, and probate delays meant less legacy income.
“Legacy income is thought to have recovered since the beginning of this year.
“Unfortunately, this is partly due to the fact that more individuals have died, but it is also due to the fact that protracted delays in the probate procedure have begun to unwind.”
Legacy giving, on the other hand, can be a win-win situation for both charities and those who make gifts.
The amount given to charity will be deducted from the donor’s estate for Inheritance Tax purposes.
This indicates that the portion of a person’s estate that could be taxed will be reduced.
“If you leave at least 10% of your inheritance to charity (after exemptions), the rate of Inheritance Tax payable on any part of your estate outside your allowances drops from 40% to 36 percent,” Ms Coles said.
“While this won’t save you money in the long run, it will ensure that the money goes to a charity you care about rather than the government.”
Ms Coles, on the other hand, cautioned against taking such action due to the reality that situations can change.
Giving a set amount to charity, for example, may cause problems if a person’s income falls after they’ve written. “Brinkwire News in Condensed Form.”