Charitable legacies at risk from tax changes

4 April 2017

This week’s changes to the inheritance tax (IHT) framework – effective from 6 April 2017 – puts charitable legacies at risk, says Remember A Charity.

While the consortium welcomes changes that reduce the fiscal burden to families, Remember A Charity is warning that the introduction of a new IHT allowance (the main residence nil-rate band) will reduce the number of people who can benefit from the tax incentives for legacy giving, risking a fall in the number of charitable legacies. A worst case scenario estimate suggests that there could be 1,200 fewer people annually leaving charitable gifts as a result of the tax changes.

Rob Cope, director of Remember A Charity, says: “Tax breaks are a natural entry point for solicitors and Will-writers to raise the option of charitable giving during the Will-writing process. But with the tax changes, our concern is that fewer people will be aware of their charitable options which will be a real threat to legacy giving.

“It makes it all the more important that we find other ways to put charity front of mind when people are writing a Will. This means engaging more closely with financial advisers and Government, emphasising the importance of legacy giving and the need for greater fiscal incentives like VAT-free charitable Wills.”

The legacy tax breaks are an important factor in encouraging people to leave money to charity, with research from the Behavioural Insights Team and University of Bristol showing that – when people’s wealth lies just above the tax threshold – they are more than twice as likely to leave money to charity in their will as when their wealth is below it.

Professor Sarah Smith of the University of Bristol, says: “We know that the tax incentive is an important factor for people choosing to give, particularly for those just above the IHT threshold. While it is difficult to predict how legacy giving will be affected by the changes, our worst case estimate is that charities could miss out on as much as 1,200 fewer charitable estates annually.   We hope the reality won’t be as dramatic as this, but the changes are certainly a timely reminder to the sector to think about how it can protect and grow legacy income.”

The importance of inheritance tax breaks in encouraging professional advisers to raise the issue of legacy giving with clients is highlighted in Remember A Charity’s latest tracking study of solicitor behaviour released today. Carried out by Future Thinking, the research shows that the proportion of professional advisers always or sometimes advising clients of the tax benefits of legacy giving during Will-writing has risen to an all-time high of 72%, up from 66% in 2015 and 61% in 2009.  Solicitors and Will-writers working with one of Remember A Charity’s campaign supporter firms were found to be more than twice as likely as other advisers to always mention charity bequests.

While the consortium is raising concerns about the implications of this week’s tax changes, Remember A Charity has also identified some potential positives, which include the fact that the main residence nil-rate band effectively lowers the net value of the estate. This means that it may cost less for people who are above the IHT threshold to access the reduced IHT rate of 36% when donating a minimum of 10% of the value of their estate to charity.

The consortium recently announced its call on government to make charitable Wills exempt from VAT6 and to re-examine the recent decision to increase probate fees. This comes as part of the consortium’s wider campaign with government to secure fiscal incentives that will encourage legacy giving among the full population, not only those affected by inheritance tax.