As the saying goes, “Charity begins at home”, and when it comes to making a Will, that seems a perfectly sensible place to start.
After all, isn't the whole point of a Will to look after the people closest to us?
But does charity have to end there?
For many people, leaving a gift to a charitable cause is another way of making a difference. The good news is that you don't need to be a millionaire, or have a building named after you, to leave a meaningful legacy.
Leaving something more than money
We all have causes that matter to us.
Perhaps a hospice cared for someone close to you. Maybe a mental health charity helped a friend or family member through a difficult time. Or perhaps there’s a local organisation, animal rescue centre or community project whose work you’ve admired for years.
Leaving a gift in your Will can be a way of saying thank you, supporting work you believe in, or helping others benefit from something that has been important in your own life.
And it doesn't have to mean choosing between your family and a good cause. For many people, the priority is providing for loved ones, with a charitable gift forming a small part of the wider plan.
Even a relatively modest gift can make a difference, particularly to smaller charities where donations help fund everyday services.
How can you leave a gift to charity?
There are three common approaches to include charitable giving in your Will.
A fixed sum of money: You might decide to leave £1,000, £5,000 or another amount to a particular charity. This is known as a pecuniary legacy and is perhaps the simplest approach.
A percentage of your estate: Rather than specifying an amount, you could leave a percentage of your residuary estate (what's left after debts, expenses and other gifts have been dealt with). This has the advantage of adjusting to the value of your estate over time.
A specific item or asset: You could leave a specific possession, such as jewellery, artwork, shares or another valuable item. Not every charity will be able to make practical use of every type of gift, so it's worth considering this carefully.
Whichever approach you choose, it's important that your Will clearly identifies the intended charity and explains exactly what you'd like it to receive.
What about inheritance tax?
Charitable giving isn't just about generosity. It can also have some useful inheritance tax benefits.
Gifts left to qualifying charities are generally exempt from inheritance tax (IHT), meaning their value is normally deducted before calculating the tax payable on your estate.
And there's a further potential advantage.
The standard rate of inheritance tax is 40%. However, where sufficient qualifying charitable gifts are made, the rate can reduce to 36% on the relevant taxable estate.
To qualify for the reduced rate, at least 10% of the estate's value (after certain inheritance tax allowances and exemptions) must be left to qualifying charities.
That might sound like a relatively small difference, but the figures can be interesting.
A simple example
Imagine an estate with £500,000 subject to inheritance tax, after the relevant allowances and exemptions have been taken into account.
Without any charitable gift:
- Inheritance tax at 40%: £200,000
- Remaining for family: £300,000
Now imagine that £50,000 is left to a qualifying charity, meeting the conditions for the reduced inheritance tax rate.
- Gift to charity: £50,000
- Remaining taxable amount: £450,000
- Inheritance tax at 36%: £162,000
- Remaining for family: £288,000
The charity receives £50,000, while the inheritance tax bill falls by £38,000.
And the amount passing to family is just £12,000 less than it would have been without the charitable gift.
That's quite a difference.
Of course, this is a simplified illustration. The actual calculation depends on the structure of the estate, available allowances and whether the charitable gifts meet the qualifying conditions. Not every estate will benefit in the same way.
It's about more than saving tax
While the inheritance tax advantages are worth understanding, they shouldn't necessarily be the reason for leaving a charitable gift.
For most people, the motivation is much more personal.
It's about supporting something they believe in. Helping an organisation continue its work. Or perhaps giving something back to a cause that has made a real difference during their lifetime.
Estate planning is often described in terms of protecting assets, reducing tax and deciding who inherits what.
Those are all important considerations.
But a Will can also reflect your values, your experiences and the things you'd like to see continue after you're gone.
And there's something rather reassuring about knowing that, alongside looking after the people closest to you, you might also be helping people you've never met.
Charity may begin at home, but there's no reason it has to end there.
Have you ever considered leaving a gift to charity in your Will?
If you'd like to explore how charitable giving could fit into your estate planning, get in touch with Wyvern Estate Planning for a friendly, no-obligation conversation.