3 fantastic benefits of leaving a charitable legacy in your will

Post by Mearns & Company in News

According to a report from the Charities Aid Foundation (CAF), in 2023, three-quarters of people in the UK supported a charity in some way.

Whether you donate money, fundraise, or volunteer your time, you might want to consider how to extend your actions to create a charitable legacy in your will – and there could be tax benefits to doing so.

The CAF report noted that despite the rising cost of living placing pressure on many families, the UK public donated an estimated £13.9 billion to charity last year – up by £1.2 billion when compared to 2022. It’s thought that at least half of people in the whole country donate to charity.

There are plenty of excellent reasons why you might support national or local charities, and if it’s important to you now, updating your will to leave a charitable legacy could be attractive too.

Here are three fantastic reasons you might want to create a charitable legacy.

1. Support a cause that’s important to you

Leaving a gift to a charity in your will could be a great way to support a good cause that’s important to you.

The CAF report found 32% of people choose a charity to donate to based on their personal experiences. So, if you’ve benefited from the services of a charity during your lifetime or witnessed the positive impact they have on communities, you might want to return the goodwill by leaving them a portion of your estate.

Similarly, 28% said family and friends influence which charity they support, so it could be a way to honour loved ones.

Charities often rely on donations, including those you might leave in your will. Charity Guide Dogs for the Blind Association states that almost 2 in 3 of its guide dogs are funded through gifts from wills, and without legacy bequests, it wouldn’t be able to offer vital support to as many people.

2. Charitable bequests could lower the value of your estate to reduce an Inheritance Tax bill

If your estate could be liable for Inheritance Tax (IHT) when you pass away, a charitable legacy could be a useful way to reduce the potential bill.

In 2024/25, the IHT nil-rate band is £325,000 – if the total value of your estate is below this threshold, no IHT will be due. Many estates can also make use of the residence nil-rate band if you leave your main home to your children or grandchildren. In 2024/25, the residence nil-rate band is £175,000.

Importantly, you can pass on unused allowances to your spouse or civil partner. So, if you’re planning as a couple, you may be able to leave up to £1 million before IHT is due.

While £1 million may seem high, once you start factoring in all your assets, particularly property, you might be closer to the threshold than you initially think.

There are often steps you can take to reduce a potential IHT bill, including leaving gifts to charity.

The value of the charitable donation is typically removed from the value of your estate before IHT is calculated. As a result, a charitable gift could be used to bring the value below IHT thresholds so your family don’t face a tax bill, while also supporting a good cause.

3. Leaving at least 10% of your estate to charity could reduce the Inheritance Tax rate

Another option if you want to use giving to reduce an IHT bill is to leave at least 10% of your estate to charity. This would reduce the IHT rate from 40% to 36%.

Depending on your estate, this rate reduction could mean you leave more to loved ones while creating a charitable legacy.

You can update your will to leave a charitable legacy

A common way to leave a charitable legacy is to make a charity a beneficiary of your will.

As part of your will, you could state that a charity should receive a set amount from your estate, a portion of the total assets, or what’s left after other gifts have been given. You can even choose to pass on certain assets to a charity, such as shares or material items.

While you can write a will yourself, you may want to seek professional legal advice. A solicitor can minimise the chances of mistakes or disputes occurring by ensuring the wording of your will is correct and highlighting potential contradictions or issues.

Contact us to talk about creating a charitable legacy as part of your estate plan

If you want to leave a charitable legacy, we can help you make it part of your wider estate plan. Reviewing charitable giving alongside other aspects of your estate plan may lead to you identifying ways to make tax-efficient donations and ensure they align with wider goals. Please contact us to speak to one of our team and arrange a meeting.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate or will writing.

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