Accountancy expert warns IHT changes may not lead to bequests surge

A charities expert at the UK200Group of chartered accountancy and lawyer firms has warned that changes to inheritance tax rules on charity donations may not lead to a hoped for surge in bequests to good causes.

From April next year, when at least ten per cent of an estate liable to inheritance tax (IHT) is left to charity, IHT will be levied at 36 per cent instead of the standard 40 per cent rate. Inheritance tax is charged on estates valued at £325,000 or above.

A new campaign, Legacy10, was launched this week to encourage people to take advantage of the tax concession.

Supporters of the campaign, including business leaders Sir Richard Branson and Jacob Rothschild, have already pledged to leave ten per cent of their estate to charity via their wills.

But Theresa Rees, a partner at Oxfordshire chartered accountants ReesRussell, and a member of the UK200Group’s charities special interest group, said that the tax break alone might not be enough to encourage more people to leave money to charity.

She said: “If the giver is very conscious of the tax that will be paid on his estate and wishes to minimise this at all costs, then the amount given to charity may change.

“For example, an estate worth £361,000 could pay virtually nothing in IHT if ten per cent were given to charity. The charity or charities would receive £36,100 although the beneficiaries would lose £21,700

“The size of the estate obviously affects the amounts required for tax-efficient legacies and also the loss to the beneficiaries.

“Generally, any increase in the amount given to charity decreases the amount received by the beneficiaries, except at a ‘breakeven’ point, which would need to be calculated for any given estate where legacies of an amount less than the ten per cent were already planned.

“Other than at this level the percentage of monies lost to beneficiaries goes down as the estate grows larger, though the actual cash lost is clearly getting bigger.

“The need – or greed - of beneficiaries and the attitude of the donor will affect the availability of the legacy probably much more than the tax position.

“At the same time, it is always worth exploring taking professional advice on minimising inheritance tax liabilities, so the reduced rate of IHT on charity bequests could prove to be a useful tax planning tool.”