Because Emmanuel College is a charity (registered number: 1137456) and legacies to charities are exempt from Inheritance Tax, by leaving a gift to the College in your Will, it is possible to lower your total Inheritance Tax liability.
Tax benefits for the legator
At present many estates, even quite modest ones, will incur Inheritance Tax on their net value – that is, on the amount remaining after the payment of debts and fees, and the deduction of bequests to a spouse, charity or other exempt organisation. Because Emmanuel College is a charity and legacies to charities are exempt from Inheritance Tax, by leaving a gift to us in your Will, it is possible to lower your total Inheritance Tax liability (see Example A below). If 10% of the estate is left to charity, then the Inheritance Tax liability is reduced even further (see Example B below).
For example, an estate with a total value of £500,000 would attract Inheritance Tax at 40% after the first £325,000:
- Taxable balance: £500,000 – £325,000 = £175,000
- Tax at 40%: £70,000
- Net legacy to non-charitable beneficiaries: £175,000 – £70,000 = £105,000
But if a legacy of £25,000 were left to the College:
- Taxable balance: £500,000 – £325,000 – £25,000 = £150,000
- Tax at 40%: £60,000
- Cost of legacy to your estate: £15,000 (£25,000 less the £10,000 saved in Inheritance Tax).
- If 10% of an estate is left to charity: a reduced rate of inheritance tax applies where 10 per cent of more of a deceased's net estate (after deducting inheritance tax exemptions, reliefs and the nil rate band) is left to charity. In those cases the current 40 per cent rate is reduced to 36 per cent. This applies where death occurs on or after 6 April 2012.
For example, for an estate with a total value of £500,000, if a legacy of £50,000 were left to the College (10% of the estate), then:
- Taxable balance: £500,000 – £325,000 – £50,000 = £125,000
- Tax at 36%: £45,000
- Cost of legacy to your estate: £25,000 (£50,000 less the £25,000 saving in Inheritance Tax). In these examples, the figures assume no bequests to a spouse; such bequests are completely exempt from Inheritance Tax.
Gifts made to a charity in the seven years before your death are exempt from Inheritance Tax. Please see www.gov.uk/inheritance-tax.