There are not many ways to avoid inheritance tax these days. The tax can be reduced but with more and more loopholes being closed it is becoming increasingly difficult to make savings. One method which still works though is to give a gift to your favourite charity. Under current legislation gifts to charities are free as long as they are recognised as legitimate organisations. In essence, this means they should be registered with the Charity Commission or fall within the classes of charities which are not required to register. If your estate is likely to be over the threshold at which tax is payable (£325000) you can reduce or eliminate the tax by leaving a cash sum to your favourite cause. Some people see this as a chance to give more on their death than they have been able to afford during their lifetime. Using gifts to charities will not increase the amount going to your heirs but it will direct money away from the treasury’s coffers.
Generally we recommend that you leave a set legacy to a charity or charities rather than a gift of residue as this is likely to be easier for your executors. However, if your estate is larger you may consider giving a slice of the residue to good causes. If you leave a gift of 10% of your estate to charity then the tax , if any, levied on the remainder of your estate is reduced from 40% to 36%.
It is very important the charity is correctly identified in your will to avoid any confusion or arguments after your death. Leaving a gift to ‘cancer relief’ or ‘disadvantaged children’ could spell disaster. We can assist you in correctly identifying and naming the appropriate charity including their registered number.