Charities and inheritance tax

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

  • Charities and inheritance tax
  • Charity exemption
  • Charity liability
  • Discretionary trusts
  • Non charitable purposes

Charities and inheritance tax

Generally inheritance tax (IHT) and charities mean a reduction in the IHT that an estate would pay but there are circumstances where an IHT charge may be triggered on the charity.

Charity exemption

Irrespective of it being a gift to a charity an individual has an annual tax free allowance of £3,000 which can be carried forward one year to give a one off exemption of £6,000. Gifts out of income, assuming that they are genuinely gifts that can be afforded out of disposable income, also carry exemption. These forms of gifts are important to charities but legacies are probably the most important source of income for most charities.

The main exemption in favour of charities is found in section 23 of the Inheritance Tax Act 1984 (IHTA 1984). This provides that transfers of value are exempt so far as those transfers are attributable to property given to charities. However, this does not apply where the property gift:

  1. only takes effect after the termination of any interest or period

  2. depends on a condition which is not satisfied within twelve months after the transfer

  3. is capable of being overturned within twelve months of the transfer

Clarification is provided in IHTA 1984 in that property is only given to charities if it is then owned absolutely by them or held on trust for charitable purposes only.

These provisions

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