IHT: 4% rate reduction
Where death occurs after 5th April 2012 and where 10% or more of an estate is left to charity, the charitable bequest is tax-free, and the remainder of the estate will attract a 10% discount on the rate of IHT paid. This means it will attract IHT of 36% instead of 40%.
HMRC has listened to concerns expressed during consultation in 2011 and this relief will be given by splitting an individual's estate into three components. These are:
- Property that passes by survivorship
- Settled property
- The free estate that can be transferred by a will or intestacy.
The value of each component after applicable reliefs other than legacies to charity is calculated. A pro rata share of the IHT nil rate band is then compared to charitable legacies left out of the property in each component.
If the legacies are at least 10 per cent of the value of the component they come out of, then the 36 per cent IHT rate applies to that component. Executors can also elect to merge that component with one or both of the others so as to extend the 36 per cent rate to more of the estate, if charitable legacies add up to more than 10 per cent of the combined components.
Gift Aid
Using Gift Aid donors may be able to increase their charitable legacies, see: IHT: relief on deathbed bequests to charity
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