Inheritance tax freeze may promote legacy growth

Inheritance tax freeze may promote legacy growth

While the Chancellor’s Autumn Statement has disappointed many in the sector with concerns raised about the lack of support for charities, the freeze on inheritance tax could be good news for future legacy income. Here, we explore why that might be.

In his statement, Chancellor Jeremy Hunt confirmed that the IHT threshold will remain at its current level until 2028, with the standard and residence nil rate band at £325,000 and £175,000 respectively.

The standard nil rate band has been at £325,000 for well over a decade (since 2009). Today’s Wills and Probate reveals that if this had risen in line with inflation, that sum would now equate to over £400,000 and exceed £500,000 by 2027/28. By keeping that threshold static, many more estates are subject to inheritance tax. What’s more, the current IHT receipts (£6 billion in 2021/22) are predicted to grow to over £8 billion in 2026/27, according to the Office for Budget Responsibility.

Lucinda Frostick, Director of Remember A Charity, says:

“While tax can eat into donors’ pockets and reduce the amount they feel able to give – particularly when living costs continue to rise, inheritance tax differs in that it’s less likely to impact people’s disposable income. Ultimately, the more estates that are eligible for inheritance tax, the more people will be looking for ways to minimise that tax and the more advisers will be focusing on supporting clients in this space. The tax incentives on charitable giving are extremely generous and that it makes legacy giving an important part of those discussions.”

Tax incentives on legacy gifts

Charitable gifts are exempt from inheritance tax and, when people choose to donate 10% or more from their Will, their inheritance tax bill can be reduced from 40% to 36%. This makes legacy giving hugely efficient for those who wish to support good causes. (See more here.) It also gives solicitors and financial advisers a reason to bring charitable giving into discussions around estate planning and Will-writing.

Lucinda adds: “Our behavioural insights solicitor trials show that even the simplest reference during Will writing of leaving a gift doubles the chances that the client does so. The inheritance tax freeze will drive more conversations in this space and that is something to be welcomed. But it also emphasises just how important it is that that we continue to work closely with the professional adviser community – solicitors, Will-writers, wealth managers and others – to ensure they highlight that message to clients in the most effective and informed way.”

Remember A Charity currently works with a network of over 800 Campaign Supporters (solicitors and Will-writers), legal and financial partners to promote the importance of championing the legacy message to clients during the Will-writing process.