13 June 2018
STEP (the Society of Trust and Estate Practitioners) has published a revised model clause for use where a testator is leaving 10% or more of an estate to charity and wishes to qualify for the reduced rate of IHT.
The Finance Act 2012, which took effect on 6 April 2012, gives an added incentive to those who want to benefit charity on their death. For those leaving 10% or more of their taxable estate – broadly, the amount after inheritance tax reliefs and exemptions – to charity, a lower rate of inheritance tax of 36% will apply to the chargeable estate (rather than 40%).
The reduced rate of IHT has the potential to provide great benefit to charities and in some situations allows testators to give more without lessening their provision for non-charitable beneficiaries.
Where a testator missed the opportunity to take up this regime when making his or her will, the Deed of Variation procedure may yet allow for the charitable gift to be maximised and the tax paid on the estate lowered. In some circumstances, ‘topping up’ the charitable gift to 10% leaves the non-charitable beneficiaries no worse off.
It is understood that HMRC will be including a link to this clause in the Inheritance Tax Manual in due course.