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Charitable Giving by Will – The New 10% Rule
The 2011 Budget unveiled a proposal to allow a reduced Inheritance Tax (‘IHT’) rate for those taxpayers leaving 10% or more of their net estate to charity by their Will, taking the applicable IHT rate from 40% to 36%. The new rules will apply to deaths on or after 6th April 2012, and will encompass Wills drafted prior to the legislation which may, unwittingly, have provided for an adequate charitable gift. As a result, both Will-makers and Personal Representatives need to be wary of the pitfalls of failing to meet the requirements of the new rules, which may result in a significant tax saving for an estate, but also potential costs.
Complex rules have been laid out to establish the operation of the relief after careful assessment of the various elements of the estate in question, including reservation of benefit property, settled property, survivorship property and free estate. The ‘baseline amount’ is calculated in order to assess whether or not the value of the charitable gift is greater than 10% of this amount, thereby allowing the application of the newly reduced IHT rate.
Evident issues of the new scheme to consider include both the complexity of the assessment involved, including the cost of valuing certain assets – particularly private company shares. Personal Representatives may, after considered reflection, decide to opt-out of the scheme, but they will need to show the decision process. With such complex legislation, significant expert legal advice is essential for both those drafting Wills after the 6th April 2012 and for Personal Representatives managing estates with a charitable gift element around the appropriate level.