Proposals to abolish Inheritance Tax must take into account risk of legacy income loss for charities

Over 50 MPs have called for Inheritance Tax (IHT) to be abolished, and Government is reported to be considering including the proposal in the Conservative manifesto.

With the current IHT framework offering generous incentives for legacy giving – a growing and crucial income stream for UK charities, Remember A Charity is calling on government and policymakers to consult with the sector and ensure that legacy income will be protected.

Lucinda Frostick, director of Remember A Charity, says:

“Any change to Inheritance Tax that fails to consider the likely impact on legacy giving and just how vital this income stream is for UK charities would be of great concern to us at Remember A Charity.

“Legacy giving has become a lifeline for thousands of charities and community-based organisations, building resilience and long-term income that has proved crucial in the current economic climate.

“As a representative body for 200 charities that rely on legacy income, we will be urging government and policymakers to consult with us and the wider sector to explore the likely impact on charities of proposed changes, ensuring that legacy income will be protected.”

What are the IHT benefits?

Charitable gifts in Wills are currently exempt from Inheritance Tax (IHT), charged at 40% above the IHT threshold. What’s more, those that donate 10% or more of their net estate to charity benefit from a discounted IHT rate of 36%. This can make a considerable reduction in the amount of tax paid per estate, enabling people to give generously, while also supporting their family and friends.

Find out more about how the 10% rule is calculated at Gov.uk.

Read more 

What is the impact of the IHT incentives on legacy giving?

Legacy giving has grown substantially – with consumer polling indicating growth of over 40% in the past decade, and while it’s impossible to state with certainty how much of that is driven by the IHT incentives, the tax framework can be a powerful influence on people’s capacity and propensity to give.

Crucially, the IHT incentive creates the opportunity and impetus for solicitors, professional Will-writers and other legal advisers to raise legacy giving with clients. Research from the Behavioural Insights Team indicates that even the simplest of charitable reference by solicitors during the Will-writing process doubles the chances that clients will leave a gift. Having tracked charitable estate trends reported by solicitors and Will-writers since 2014, we can see a 50% increase (from 16%-24%) in the proportion of professionally written Wills that include a charitable donation.

Key facts and figures

IHT is a minority tax impacting fewer than 4% of deaths (27,000 in 2020/21), and yet;

• IHT estates that include a charitable gift (9,580) account for around one quarter of all charitable estates*
• Almost one in ten taxpaying estates (2,590 in 2020/21) include donations of 10% or more, qualifying for the reduced IHT rate of 36%*

Gifts in Wills now raise almost £3.9 billion*** for good causes annually, funding vital charitable services for charities and community-based organisations across the country. Legacy giving is an integral and thriving part of the UK’s philanthropic landscape.

Remember A Charity is working with the Chartered Institute of Fundraising and fellow sector bodies to build up a body of evidence on the importance of the IHT incentive and to formulate a collaborative response to Government.

 

 Sources:

*HMRC IHT statistics and commentary, 2020/2021

**Smee and Ford, Legacy Trends Report, 2023

***Legacy Foresight, 2023

 

For more information see www.rememberacharity.org.uk/IHT 

If you are a Remember A Charity member and would like to share any thoughts about IHT, please email the team at info@rememberacharity.org.uk