IHT freeze could boost legacy giving
Thousands more families could be dragged into the inheritance tax (IHT) net, due to a government decision to freeze the £325,000 tax free threshold until 2019. But this could prompt more people to leave a charitable legacy, experts say.
Inflation and rising house prices in some parts of the country, especially the South East, mean that what was originally seen as a tax on the wealthy is affecting more and more people. At the same time many popular IHT reliefs are now worth a fraction of their original value.
Ceris Gardner, a partner at Maurice Turnor Gardner and trustee of Philanthropy Impact, said: “More people will end up being liable for IHT and this could deliver a boost for legacy giving. For those on the cusp of the nil rate band who want to direct their own money rather than pay IHT, this could put the idea of philanthropy in their heads.”
Gifts to charity are exempt from IHT, and a reduced rate of 36% applies on estates over the nil rate band of £325,000 if you give at least 10% of assets to charity.
Edward Lane Fox, a senior associate at the Legacy10 campaign that aims to encourage people to give 10% of their estate to charity, agrees that the freeze could encourage people to leave a charitable legacy. He said: “Changes to the rules on inheritance tax which came into force in April 2012 have provided a significant incentive to encourage those who now fall outside the threshold to consider leaving a legacy. Freezing the threshold at which inheritance tax is paid for a further three years means the Government is bringing greater policy stability and will make the idea of leaving a legacy more attractive.”
Despite the fact that estate planning will be relevant to an increasing number of people following the freeze, recent research from Foresight Wills suggests that 58% of people in the UK do not have a will. Legal advice, having an up-to-date will, and good record keeping can all reduce IHT bills.