Inheritance tax – charitable legacies
A new consultation paper on the planned introduction of a lower inheritance tax rate for individuals who leave 10% or more of their estate to charity has been published. The publication of the consultation paper entitled‘A new incentive for charitable legacies’ follows the announcement as part of the 2011 Budget of a new measure designed to encourage people to leave money to charity in their wills.
In his Budget address, the Chancellor said ‘If you leave 10% or more of your estate to charity, then the government will take 10% off your inheritance tax rate. Let’s be clear. No beneficiaries will be better off. Just the charities. To the tune of £300m. I want to make giving 10% of your legacy to charity the new norm in our country.’
The new reduced rate of inheritance tax of 36% (reduced from 40%) will apply where 10% or more of a deceased’s net estate (after deducting IHT exemptions, reliefs and the nil rate band) is left to charity. The new rate is expected to apply for deaths on or after 6 April 2012.
The consultation document covers the following areas:
- Application of the 10% test and the reduced IHT rate.
- The nature of the legacy.
- Instruments of Variation.
- Administrative issues.
- Other issues – mainly applicable to specific situations.
- The impacts of the policy.
The document also includes a number of worked examples to help explain how the reduced rate of inheritance tax will work. The closing date for responses to the consultation is 31 August 2011.