2 important benefits of leaving a charitable donation in your will

14 October 2024

Throughout history, there have been thousands of weird and wonderful bequests found in wills.

From William Shakespeare leaving his “second best bed” to his wife, Anne Hathaway, to Harry Houdini leaving a secret code for his wife to contact him in the afterlife, how you decide to leave your legacy is up to you.

One increasingly popular (and extremely generous) inclusion to make in your will is leaving funds to a charity or charities of your choice. While you may have only read about rich and famous celebrities doing so – Elton John and David Furnish say they’ll leave most of their $200 million legacy to charity, for instance – anyone can leave a charitable estate, no matter the size.

In fact, in 2023, a record number of charitable donations were made using wills in the UK.

According to Today’s Wills and Probate, 38,178 charitable estates were found in UK wills in 2023, the highest number since this data began being recorded in 2012. The total value of these charitable bequests was £22.6 billion – £1.2 billion higher than the previous year.

Along with leaving a legacy that supports a cause you care about, there are significant tax advantages to donating a portion of your estate to a registered charity, registered amateur sports club, or political party.

Keep reading to discover two key benefits of doing so.

1. Making a difference to a cause you care about

Firstly, it may bring you immense gratification to leave some of your wealth to a charitable organisation close to your heart.

While it’s natural to put your family first in your will, if you know they’re taken care of, you could feel proud of being able to support a cause you care about too.

Just like bequeathing wealth to family or other loved ones, it’s important to be precise when leaving money to a charity in your will.

So, it may help to:

• Search the charity register on the government website and include identifying factors, like the charity’s full name and registration number, in your will
• Be specific about whether you would like to leave cash, property, shares, or another type of asset to this charity
• Talk to your family about your plans to leave a charitable estate, to avoid any surprises when your will is read after your death.

In addition to these important steps, it could help to write a letter of wishes that accompanies your will. To learn more about this topic, read our article on how to draft a comprehensive letter of wishes and why this document could be integral when your estate is divided after your death.

While a letter of wishes is not legally binding, it could help the executor of your will to make use of your money in the way you intend. For instance, you might want to put the funds towards something specific within your chosen charity, such as funding a new building project.

2. Reducing your family’s Inheritance Tax bill

As you may have read about in our previous insights, Inheritance Tax (IHT) receipts are rising due to the government’s freeze on the nil-rate bands, combined with the rising value of estates overall.

The nil-rate bands represent how much an individual can bequeath when they die, without their beneficiaries paying IHT. There is a £325,000 nil-rate band, and an additional £175,000 residence nil-rate band for those passing their home down to direct descendants. This brings the total a person can normally bequeath tax-free to £500,000 as of the 2024/25 tax year.

However, as the nil-rate bands have been frozen since April 2009 and April 2020 respectively, estates that have grown in value over this time are being subject to record-high IHT bills. That’s why HMRC reported that IHT receipts stood at £7.5 billion in the 2023/24 tax year, up from £6.1 billion two years earlier.

With rising IHT bills to consider, you may be looking for a way to reduce your family’s potential future bill – and making a charitable donation can do just that.

As of 2024/25, the rules are as follows:

• Cash, property, investments, or any other asset donated to an eligible charity, amateur sports club, or political party, either before your death or in your will, does not form part of your estate for IHT purposes.
• If 10% or more of your net estate is donated to charity, the remainder of your estate could benefit from a reduction in the rate of IHT payable.
• IHT is usually charged at 40%, but after an applicable charitable donation, this could drop to 36%.

While these regulations are subject to change in future, making a charitable donation in your will could be a worthwhile endeavour. Not only can a worthy cause make use of the funds you donate, but your family’s tax liability could decrease too.

Get in touch

Our financial planners are here to help you grow, spend, and bequeath your wealth as you choose.

If you’d like to learn more about leaving money to charity when you’re gone, or estate planning in general, get in touch with a member of our team today.

Email info@depledgeswm.com or call 0161 808 0200.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All contents are based on our understanding of HMRC legislation, which is subject to change. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

The Financial Conduct Authority does not regulate estate planning, tax planning, or will writing.