Inheritance Tax UK: Surge in charity donations – how you could legally reduce your bill

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Inheritance tax is payable on a person’s estate when they pass away, and is related to property, money and possessions. For this reason, the levy is not well-liked within the UK, and increasingly viewed as a ‘death tax’. Those who are looking to reduce their bill can follow a number of options, however, one is donation to charity.

The IHT threshold currently stands at £325,000, meaning there is no tax to pay if everything above this figure is left to certain individuals and groups.

As such, charity donations can be a way of reducing a bill, and research has found many are looking at this option as a method of doing so.

Wealthy Britons have chosen to transfer large sums of money to charity, according to Freedom of Information data from the Telegraph.

Transfers of seven figures have increased by 31 percent to 3,043 in the 2017/18 year.

This is up over 2,000 from the year before, showing a marked increase in the usage of this move.

However, it is likely that it is not just well-off Britons who are donating to charity in this way.

Many people may choose to leave a gift in their last will and testament to a charity of their choice.

This is a move which could not only benefit the organisation, but also the individual and their beneficiaries, who could secure a smaller tax bill legally.

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It is also likely to be a sensible move for those who already support a charity and would like to continue this legacy after they pass away. 

The current rule on Inheritance Tax and charitable donations was first introduced in 2011.

It means that if a person passes away after April 6, 2012, leaving 10 percent or more of their estate to charity, they could benefit from a reduced rate of IHT.

This would mean a lowering of the tax bill from the standard 40 percent rate to 36 percent.

For those who are looking to understand more about their Inheritance Tax bill, the government has provided a calculator.

The reduced rate calculator enables Britons to work out how much to give to charity in a will to qualify for the reduced IHT rate. 

Inheritance Tax receipts have drastically increased over the years, with a sizeable amount taken in by HMRC.

In the 2009-10 tax year, £2.4billion was collected in IHT, but by 2018-19 this had risen to £5.4billion.

When making decisions about how an estate is to be managed in terms of a tax bill, the Money Advice Service has recommended Britons take advice.

This should be from a solicitor or accountant who specialises in estate planning.

The reason for this move is because the rules surrounding Inheritance Tax and what people can actually give away to charity are not always easy.

These individuals, then, can often provide specific and tailored advice to suit a person’s individual circumstances. 

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