Inheritance Tax Review Must Take Into Account Vital Legacy Income Stream

Inheritance Tax (IHT) and associated tax benefits linked with legacy giving could be scrapped according to a proposal from the think tank Resolution Foundation. Published yesterday, the Passing On report proposes that Inheritance Tax is replaced by a new system of Lifetime Receipts Tax. The report closely follows last week’s Government-funded launch of the Office of Tax Simplification’s consultation into IHT. While Remember A Charity welcomes review of the Inheritance Tax system and the potential to introduce a more fair and level tax system, it highlights the need for the charitable sector to have a voice in reform. The consortium emphasises the importance of building understanding around the societal impact of gifts in Wills and the role of IHT relief. Rob Cope, Director of Remember A Charity, says: “It is critical that any review of the current inheritance tax framework fully considers the importance of gifts in Wills and impact on beneficiaries. The benefit of the current rate relief goes well beyond the immediate financial impact, creating an environment where conversations about charitable giving are becoming more commonplace. Government has long supported legacies and there is a need to ensure that future policies continue to encourage and inspire giving.” Legacy income is the largest single source of voluntary income to the sector, generating approximately £2.8 billion each year.  A generous system of tax relief means that any legacy gift to charity is currently exempt from IHT (charged at 40%) and a lower rate of tax (36%) is applicable on estates where 10% or more is donated. Cope adds: “Charities and their beneficiaries are increasingly reliant on legacy income, which funds vital services that make a real difference to our lives, ranging from finding a cure for cancer to providing emergency services and more. We know that inheritance tax exemption and reductions can be an effective incentive for legacy giving and that – because of this – solicitors regularly raise the option of legacy giving with clients. So we would be deeply concerned that the removal of these incentives could threaten one of the sector’s most significant income streams.” The Office of Tax Simplification launched its consultation on IHT just last week. The consultation closes on 8^th June 2018, with a report due for publication in the Autumn. Remember A Charity is preparing a response to the consultation, which will emphasise the importance of legacy income to UK charities. Last year, Remember A Charity proposed the introduction of a VAT exemption on the cost of writing any Will that includes a charitable gift, aiming to make tax benefits available to all those who choose to donate in this way.