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Inheritance Tax - Why Giving Away Money Can Mean More for the Beneficiaries’

In most cases, it doesn't make sense to simply give away money to save tax during a person's lifetime. For example, a higher rate taxpayer can claim tax relief to offset their income tax bill on qualifying donations made via the gift aid scheme. However, the cost of the donation will always exceed the relief, so it doesn't make sense to make additional donations purely from a tax perspective, though they can be useful for helping to bring down the total income to save paying the high-income child benefit charge for example.
 
However, when it comes to the interaction with wills and charitable bequests, there can be circumstances where increasing the amount given away can actually mean there is more money left over for the beneficiaries.
 
Since 2012, a reduced rate of inheritance tax (IHT) of 36% applies where at least 10% of an estate is left to a qualifying charity. On the face of it this is simplistic, but as is often the case there are complications once the details are examined.
 
For one thing, it is not always necessary to bequeath 10% of everything owned. The estate is split into three components:
 
Survivorship assets. Property owned jointly with others, and which automatically passes to them upon death.
Settled property. This refers to the part of the estate, if any, that is held in trust.
Everything else. Charitable bequests are treated as coming from this first.
 
The 36% tax applies to any of these where 10% or more of it (after considering a proportion of the nil-rate band and other reliefs) is donated, i.e. so that the reduced rate may apply to some assets, but the full rate applies to others.
 
However, it is also possible to make an election to merge components and compare the charitable gifts to their aggregate value. If the gifts exceed 10% of the aggregated value, the reduced rate can apply to more than one component. 
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Added By: Sharon Worger on 02nd Sep 2021 - 17:37
Number of Views: 32
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