Charitable legacies—tax implications

The following Private Client practice note provides comprehensive and up to date legal information covering:

  • Charitable legacies—tax implications
  • Re Benham’s Will Trusts and after
  • Inheritance tax and relief
  • Variation of gifts
  • Income and capital gains

Charitable legacies—tax implications

It has been Government policy for centuries to encourage charitable giving. Tax relief plays a key role in this policy. Charities (defined as either corporate bodies with exclusively charitable objects or bodies of trustees holding assets on charitable trusts which have no legal personality of their own) are relieved from tax on the income and capital gains they receive provided that the income or gains are ‘applied to charitable purposes only’, ie used directly to further the purposes of the charity or invested for the charity. Gifts to charity are therefore often worth considering in the context of lawful tax planning.

Gifts made during the donor’s lifetime may be free from income or corporation tax (in the case of cash under Gift Aid and in relation to works of art, land or shares under Qualifying Investment Donation Relief (QIDR)) and capital gains tax (or corporation tax on chargeable gains).

Where the gift is made by Will (or otherwise as a transfer of value) it is exempt from inheritance tax. In addition, where more than 10% of the value of an estate is dedicated to charity, the rate of inheritance tax applicable to the whole estate is reduced from 40% to 36%.

It should be noted that this means that when ‘grossing up’ a charitable gift to find the amount payable when tax relief is added

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