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NoMoreKickingCans
Posted: 24 August 2021 10:13:32(UTC)
#42

Joined: 26/02/2012(UTC)
Posts: 4,470
Quote:
Maybe worth noting that, since 2012, if you leave at least 10% of your estate to charity then the IHT rate on the rest of the estate is reduced from 40% to 36%.

Never seemed attractive to me.
Imagine a £2M estate - leave £200k to charity - save £40k IHT - other beneficiaries get £1.44M
- leave nothing to charity - other beneficiaries get £1.6M
So you reduce the proceeds to other benficiaries by 160K, charity gets 200k - only attractive if you have already decided you want to give a large sum to charity.

I have also read some troubling stories concerning legacies to charities. The charities seem typically VERY aggressive in obtaining their willed legacy and have well paid and aggressive lawyers that will make mincemeat of any you might fund by spending your legacy to fight them.

Issues seem to have included...
Will leaves a % of an estate but was made 10/20 years before when that was a modest amount e.g. 20k - but in final estate it has become 200k.
Will leaves a large sum to charity but the maker of the will didn’t release this would be - after the payment of IHT - i.e. the charity’s bequest is free of IHT.
Another aggressive beneficiary is now involved if there is any need to change the will with a Deed of Variation.

My view is better to give to charity year on year while alive and let them claim the gift aid income tax recovery.
But just my opinion. Some have no family to leave to anyway.
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NoMoreKickingCans
Posted: 24 August 2021 10:36:36(UTC)
#44

Joined: 26/02/2012(UTC)
Posts: 4,470
Bergman has been dealing with a will for over a year - not unusual. It is a lengthy process anyway and any kind of disagreement can take a lot of negotiation and sometime legal action to resolve. I had to deal with one estate which only got closed following the death 3 years later of someone that had raised an ongoing legal dispute. I had to deal with about 5 different solicitors/lawyers as there was also a property dispute.

It is important to realise that without liquid funds/investments which are sufficient to pay the IHT (due within 6 months of death, otherwise penalties apply) you could put your benficiaries in a position where they need to execute a fire sale of the property to pay the IHT !

Where there are investments, solicitors will normally say they must all be sold immediately regardless of market conditions as this is the only way of guaranteeing that beneficiaries do not suffer a loss during the estate administration. Imagine being told that in April 2020 and having the estate take 3 years to settle !
Fortunately I managed to get all beneficiaries and the solicitor to reach an agreement over gains/losses which avoided this happening in one case.

Do you want a charity insisting investments and/or property(ies) are sold at a bad time because they want their bequest in full NOW ?
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Tim D on 24/08/2021(UTC)
D Bergman
Posted: 24 August 2021 10:38:38(UTC)
#43

Joined: 22/03/2018(UTC)
Posts: 1,308

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NoMoreKickingCans;183117 wrote:
Quote:
Maybe worth noting that, since 2012, if you leave at least 10% of your estate to charity then the IHT rate on the rest of the estate is reduced from 40% to 36%.

Never seemed attractive to me.
Imagine a £2M estate - leave £200k to charity - save £40k IHT - other beneficiaries get £1.44M
- leave nothing to charity - other beneficiaries get £1.6M
So you reduce the proceeds to other benficiaries by 160K, charity gets 200k - only attractive if you have already decided you want to give a large sum to charity.


Sorry, but I think your figures are incorrect.

For every £100K you leave to a charity, the IHT on your estate will be reduced by £76K - assuming that your estate owes 40% tax on the residuary estate.

In your example, you seem to assume that your £2M estate has £1M in IHT-free allowance, thus leaving an IHT owed of 40% out of the second £1M, so that your beneficiaries will get £1.6M

But in such a case, if you leave just £100K (10% of your taxable estate), your beneficiaries will receive £1.576M (£1M tax-free, plus £900K less 36% IHT)

So for a cost (to your beneficiaries) of £24K, you will have donated £100K.

However, this was not the purpose of the thread so I suggest we leave this issue of estate planning to another thread (if desired).
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NoMoreKickingCans on 24/08/2021(UTC), Tim D on 24/08/2021(UTC)
NoMoreKickingCans
Posted: 24 August 2021 10:49:45(UTC)
#45

Joined: 26/02/2012(UTC)
Posts: 4,470
OK, my mistake, I just went by Tim’s statement.
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D Bergman on 24/08/2021(UTC)
Milo Don
Posted: 24 August 2021 11:41:57(UTC)
#46

Joined: 18/05/2016(UTC)
Posts: 97

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I was under the impression that it was 10% of your net estate i.e assets less liabilities before IHT calculations.

I had an aunt who wanted to leave her estate to charity but it was largely consumed by care home fees in the end.
I don't know where HMRC stands on gifts out of surplus income if the donors later finds themselves unable to cover care costs.
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D Bergman on 24/08/2021(UTC)
Alonso
Posted: 24 August 2021 11:50:38(UTC)
#39

Joined: 11/07/2020(UTC)
Posts: 61
D Bergman;183108 wrote:
Alonso;183103 wrote:
D Bergman;183099 wrote:
Alonso;183098 wrote:
While we are on this topic, how does donation/contribution to charities work? It is a small amount (between £1k-£2k pa) to education charity now (to schools), but want to increase this in couple of years (to around £5k pa).


What is your question about these contributions?


Do we need to keep a proper record of all the donations (like receipts, emails etc...) for HMRC? Top of my head, I don't recall how does HMRC treat any money given to charities for IHT, so any info will be greatly appreciated.


Any contributions to registered charities have nothing to do with IHT, whether donated during the lifetime of the benefactor or in their will.
If you are donating large sums I would suggest keeping receipts.

(I am currently an executer of a friend's will, who left her entire estate of about £750K to charities, so there is no IHT payable. The charities are being a bit of a pain to deal with, but HMRC quickly confirmed that no tax is due).

I assume that you are aware of donating via Gift Aid to increase the value of your donation and potentially to recover higher-rate income tax (if applicable).

Edit: Nothing to do with this thread, but for anyone planning to leave donations to charities in their will, be advised that leaving proportions of your estate to various charities can cause major hassles for your executers. It is much easier to leave set amounts to charities, as they then have no interest in other details of the estate.


Thank you so much. Very useful. Yes, I am aware of Gift Aid
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D Bergman
Posted: 24 August 2021 12:15:42(UTC)
#47

Joined: 22/03/2018(UTC)
Posts: 1,308

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Milo Don;183134 wrote:
I was under the impression that it was 10% of your net estate i.e assets less liabilities before IHT calculations.

I had an aunt who wanted to leave her estate to charity but it was largely consumed by care home fees in the end.
I don't know where HMRC stands on gifts out of surplus income if the donors later finds themselves unable to cover care costs.


Re leaving 10% to charities, have a look at this simplified example:
https://www.bequeathed.o...te-to-charity-exemption

Regarding the 2nd query, I would think it unlikely that a donor who is unable to cover care fees will leave an estate valued at more than the IHT allowance of £325,000.
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Tim D on 24/08/2021(UTC), NoMoreKickingCans on 24/08/2021(UTC)
NoMoreKickingCans
Posted: 24 August 2021 18:22:32(UTC)
#48

Joined: 26/02/2012(UTC)
Posts: 4,470
Hmm.
Having read that I imagine there may be a large number of charitable trusts in Leichtenstein which may be covers for the rich to keep their family wealth free of all inheritcance tax ?
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ebkent99 on 04/01/2022(UTC)
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