One of the key elements of writing a will is naming the beneficiaries, the individuals who will receive a share of your assets after you die.
You have complete control over exactly who you’d like to name as a beneficiary, what percentage of your assets you’d like to leave them and what type of assets you’d like them to have (e.g. money, property or specific items of value).
A beneficiary can be a family member, a friend, someone who has made an impact on you, or even an organisation like a charity.
In much the same way as you would state the share of your assets that you would like to leave to an individual – you can also declare that you would like a charity to receive a proportion of your assets, after you pass away.
What are the benefits of donating to charity in your will?
As you can imagine, this support is invaluable to a charity. When donating through their will, people are able to make larger contributions than might be possible for them in life.
As a result, many charities depend on the generosity shown by people in their wills, in fact, around 13% of all charity income in the UK comes from legacies.
Alongside this, making donations to a charity in their will can help owners of large estates to reduce the amount of Inheritance Tax that is taken from their assets.
If you leave a minimum of 10% of your estate’s value to a charity, the Inheritance Tax rate will drop down to 36%. While this is not applicable to all cases of estate administration, it can be highly beneficial to owners of large estates.
What is the process of making a donation through a will?
When making a donation, or leaving a legacy through your will, you can follow one of two processes:
The first option is to name a charity in your will and declare how much money you would like to leave to them. This would involve naming the charity (including their registered charity number) and specifying the value and type of assets that you would like to donate.
Alternatively, you could ask your trustees to decide how they would like to distribute this portion of your assets. For this, you would need to declare the value of the assets that you would like to donate. Then, alongside this, you can state your wish for them to choose a charity that they would like to support.
5 important things to know before making a charitable donation in your will
1. You can make this donation in any way you like
If you’d prefer not to name a donation of a fixed sum of money, then you can choose to make this donation in another form.
For example, it could be donating a property or a valuable asset. Or you could donate a portion of your residuary estate (this means the value of your estate that remains after the other steps in the will have been completed, such as paying tax, giving shares to other beneficiaries, etc.).
2. Owners of large estates can use charitable donations to reduce the Inheritance Tax bracket
Alongside the donation itself being non-taxable, owners of large estates can also use charitable donations to reduce the Inheritance Tax bracket that their estate falls under.
The laws surrounding UK Inheritance Tax states that, if an individual donates 10% (minimum) of their estate to charity, then the Inheritance Tax to pay on their estate will be reduced from 40% to 36%.
3. Charitable donations are non-taxable
Another key benefit of making a donation in your will is that these gifts and donations are non-taxable. For large properties (over the value of £325,000), Inheritance Tax means that the value of the estate is taxed at 40%.
For instance, rather than leaving an extra £8,000 to a family member (which would cost £20,000 in pre-taxed assets), you can donate the £20,000 to a charity in its entirety.
4. You can make specific requests for how you’d like a charity to use your donation
If you have a specific request for how your donation will be used, you can state this in your will.
However, we’d highly recommend that you speak to the charity about this first before you lay it down as a requirement in your will. That way, they can tell you how feasible it is, and you can discuss the proposal for your donation in more detail.
Equally, it ensures that they have the scope to take on your request. Without speaking to the charity in advance, they might have to refuse your donation at a later date, because they may not be able to comply with your wishes.
5. Check that your choice of charity has a Charity Reference Number
It’s important to note that, in order for a charity to be exempt from Inheritance Tax, the charity needs to have a Charity Reference Number (as issued by HM Revenue & Customs).
So, before you name a charity, you should confirm that this reference number exists. In addition, we recommend including this number in your will. Often, different charities share the same name, or change names as part of re-brand. By including this reference number along with their name, this will make it completely clear which charity you are referring to.
We would also recommend that you check that the charity is registered with the UK Charity Commission. This will act as a secondary verification that the charity is legitimate and trustworthy.