Legacy lawyer, Naomi Ireson, looks at inheritance tax and legacy income, and considers how the charity sector could be impacted if the tax was scrapped.
Government proposals to abolish inheritance tax (IHT) could result in UK charities losing out significantly on legacy fundraising income.
Under the current rules the rate of IHT is 40 per cent on the value of an estate above a threshold of £325,000. This threshold is frozen up to and including the tax year 2025-26.
However, charitable gifts in Wills are exempt from tax. The exemption also applies equally to lifetime gifts.
Furthermore, anyone who leaves 10 per cent or more of their net estate (after deducting IHT exemptions, reliefs and the nil-rate band) to charity is also able to reduce the rate of IHT by 4 per cent, from 40 per cent down to 36 per cent.
These concessions are an important incentive to people to make charitable legacies and it is feared that if these are removed then legacies will decline.
According to GOV.UK in the tax year ending April 2023, Inheritance Tax relief for charitable donations was estimated to total £790 million. This represented an increase of 1% year-on-year.
The charity sector is therefore urging MPs and policymakers to consider how plans to scrap IHT could impact the income streams of charities and community-based organisations. Any changes, they say, must ensure that legacy income is properly safeguarded and protected.
Naomi Ireson is a Legal 500 recommended lawyer who deals with legacy disputes throughout England and Wales. She is sympathetic to the pressures that charities find themselves under when a dispute arises and has therefore created a range of funding options, including No Win – No Fee.
