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Large bequests to charities are incentivising heirs to contest wills

Inheritance tax relief on charitable donations hits record high of £630m as government is told to align incentives with the way people contribute

24 August 2015

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Despite more 'spare' cash now available for people to leave to charitable organisations, sizeable bequests are increasingly putting charities in conflict with other beneficiaries.

Wilsons, which recently acted for the Blue Cross, the Royal Society for the Protection of Birds, and the Royal Society for the Prevention of Cruelty to Animals in the highly publicised Ilott case, calculated that the total amount of inheritance tax (IHT) relief claimed against charitable donations in wills has reached a record high of £630m.

The firm has also estimated the total value of bequests from estates over the IHT threshold reached £1.6bn at the end of the 2014/15 tax year. Lawyers at the firm, however, have opined that leaving large bequests are putting the charities that receive them in conflict with a will's other beneficiaries.

Tim Fullerlove, a partner specialising in tax and trusts at Wilsons, said: 'The main heirs in wills are now often of an age where they have already achieved a reasonable level of financial security. That means that their elderly parents no longer feel an obligation to leave them everything, and are more likely to set something aside for charitable causes.

'These bequests may be very sizeable sums, which is a big incentive for heirs to go to court to contest the will.'

From April 2012, any estate in which 10 per cent or more of the total value was left to a charity has been taxed at a rate of 36 per cent instead of 40 per cent.

The change means anyone planning to leave 4 per cent or more of the IHT-eligible portion of their estate to charity would leave more for their other beneficiaries by raising the value of the charity legacy to 10 per cent.

However, Fullerlove said the amount of IHT relief claimed against charitable bequest is unlikely to have been influenced significantly by rule changes designed to encourage charitable bequests, and that the tax incentive to leave legacies to charities is not aligned with the way people donate.

'With the exception of the very wealthy, people rarely divide their wills on a percentage basis, because they prefer more certainty about who will get what,' said Fullerlove.

'Even after the inheritance tax threshold for a couple is raised to £1m, there will still be plenty of ordinary families over that threshold who will benefit from some simple tax planning.

'If people knew that increasing their donation to charity by a fixed sum, rather than an abstract percentage, would decrease the overall tax burden on their estate, then that would be a more powerful incentive to donate more.'


John van der Luit-Drummond is deputy editor for Solicitors Journal | @JvdLD

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Tax & Wealth structuring