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Gifts to charities are exempt from Inheritance Tax (IHT) whether they are made in lifetime or by Will. Likewise a gift to a trust that is established for charitable purposes is exempt from IHT. The Charities Act 2011 defines a “charitable purpose” as one that falls into one of 13 categories defined in the Act and is for the public benefit. The 13 categories are:

  • The prevention or relief of poverty
  • The advancement of education
  • The advancement of religion
  • The advancement of health or the saving of lives
  • The advancement of citizenship or community development
  • The advancement of the arts, culture, heritage, or science
  • The advancement of amateur sport
  • The advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity
  • The advancement of environmental protection  or improvement
  • The relief of those in need, by reason of youth, age, ill-health, disability, financial hardship or other disadvantage
  • The advancement of animal welfare
  • The promotion of the efficiency of the armed forces of the Crown or of the efficiency of the police, fire and rescue services or ambulance services
  • Any other charitable purpose

In most cases a straightforward gift will be sufficient to gain the exemption. HMRC define a “straightforward” gift as a gift to charity that is given absolutely and unconditionally. A gift will not be straightforward if it is expressed to be for a special purpose, although an expression of a non-binding wish as to how the legacy should be used is acceptable. A gift will not be straightforward if it is made to a private or family charity or a subsidiary fund of an organisation.

To qualify for the exemption a charitable gift must be to a UK registered charity and must be outright (not subject to any conditions) and immediate. Although a gift that is subject to a condition may qualify for the exemption only if that condition is satisfied within 12 months.

Where a gift is made by Will to a charity the exemption will not be available if the gift is not immediate. For example, where a testator leaves their estate to a person on a life interest with the charity as remainder beneficiaries. In this case the charity exemption would not be available on the testator’s death as the gift to the charity is not immediate. On the life tenants death the charity exemption will be available.

The gift cannot be defeasible i.e. capable of being defeated on a future event. This may be a gift that could be revoked, or where property is held by trustees with an overriding power to appoint it to someone other than the charity.

The gift must be of the whole of the deceased’s interest in an asset or the whole of a lesser share. The gift cannot be for a limited period. For example, if a testator owns the freehold of a property and gifts a half share of it to charity the exemption will apply. If they gift a leasehold of the property to the charity, or gift the whole property for a limited time only, the exemption is lost.

 

The Society of Will Writers and Estate Planning Practitioners have worked with CAF – The Charities Aid Foundation for a number of years. They support our members and their clients by allowing a mechanism for leaving a lasting charitable legacy. CAF are by definition a charity but they can hold money on trust for other charities. For information on CAF and helping people give money to the charities they care about, check out the CAF website.

 

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The Society of Will Writers is a non-profit making self-regulatory organisation whose primary objectives are the advancement, education and ethical standards within the will writing profession.

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