Legacies have historically been very important to the finances of the Church. Recently there have been important and beneficial changes to the rules regarding inheritance tax which has the potential to benefit charities such as St Columba’s. These new rules came in to force on 6 April 2012. We have set out the impact of the rules briefly below but if you are interested in finding out more please talk to our Finance Convenor, Hamish Henderson, or your solicitor.

Changes to Inheritance Tax (IHT)

In the 2011 budget the Chancellor announced that any estate which leaves at least 10% to a
charitable cause will be able to take advantage of a reduced rate in IHT, from its current level of
40% down to 36%. The Government hopes this reform will encourage donation to charity.

How it works

The example below shows how this change in IHT will work in practice on a gross estate of
£1million. £1million sounds like an awful lot of money but it makes the maths in the example easier plus with the value of property nowadays many of us may be more asset rich than we imagine. The net result of a 10% donation under this new system means the estate’s beneficiary foregoes £16,200 but the charity benefits by £67,500. Therefore, the benefit to a charitable cause is four times greater than the cost to an estate’s beneficiary. It is not a requirement that the 10% donation is given to one charity alone.

Without a Donation
Gross Estate £1,000,000
Less: nil rate band £325,000
Net estate on which the
donation is calculated £675,000
No charitable donation £0

Taxable estate £675,000

Less: inheritance tax @ 40% £270,000

Remaining Estate
(inc. nil rate band) £730,000

With a 10% Legacy Donation
Gross Estate £1,000,000
Less nil rate band £325,000
Net estate on which the
donation is calculated £675,000
Less:donation of 10% £67,500

Taxable estate £607,500

Less:inheritance tax@ 36% £218,700

Remaining Estate £713,000
(inc. nil rate band)