Inheritance tax

Does a gift to charity help with inheritance tax?
RNLI supporter Kyle whose grandfather has been making model lifeboats for many years

Photo: Nigel Millard

RNLI supporter Kyle whose grandfather has been making model lifeboats for many years

Inheritance tax is not just something rich people pay

If you own your own home, it’s quite likely that inheritance tax may be due on your estate when you die. This is even more likely if you do not share that legal ownership of your home with someone else.

You don’t have to worry about saving up for paying this tax. It will be paid for out of your estate when you die, from the assets you own at the time.

Inheritance tax starts at £325,000

If you are leaving your estate to your spouse or civil partner, you can pass your whole estate to them without any inheritance tax being due (it is worth noting that if you simply live with someone, this is not the case).

You also have the option to make gifts worth up to £325,000, tax free, to the next generation or to charity – and then pass the remainder of your estate to your spouse or civil partner.

Inheritance tax can start at £650,000 if you are a surviving spouse or civil partner

If someone doesn’t use all or some of their tax-free £325,000 allowance by making gifts to the next generation or charity, they can pass it on, or whatever is left of it, to their spouse or civil partner. This means the surviving legal partner can make gifts worth up to £650,000 before inheritance tax is payable on their estate.

Inheritance tax is normally 40%

If you do not have a surviving spouse or civil partner to pass your estate onto, your estate will normally have to pay 40% tax on any value above £325,000. This is also true if you do have a legal partner but are leaving your own estate entirely to the next generation.

You can reduce inheritance tax to 36%

To encourage people to leave a gift in their Will to charity, HMRC will reduce any inheritance tax due on your estate by 4% if the gift you leave to charity is worth 10% or more of your net estate. This means that you can make a more significant gift to the RNLI if you would like to, with less effect on the value of any other gifts you leave to your family and friends.

Professional advice is very helpful

When thinking about whether your estate will attract inheritance tax, it’s also worth thinking about things like life insurance policies, which you can often write ‘in trust’ so that they pay out outside your estate for inheritance tax purposes. It’s worth seeking professional advice from a solicitor, accountant or financial adviser.

Please note that the rules are different if you die intestate (without a Will).

Get information about inheritance tax in Ireland.

Inheritance tax facts

£325,000

The amount you can pass on in your Will tax-free.

Estates above this amount attract inheritance tax. Unless the estate is passing to your spouse or civil partner.

£650,000

The maximum amount your surviving spouse or civil partner can pass on tax-free.

This is if you do not use your £325,000 tax exemption and instead pass it on to them.

40% tax rate

This is the amount of tax payable on estates above £325,000.

36% tax rate

This is the amount of tax payable on estates above £325,000 if you have left a gift in your Will to charity worth at least 10% of your estate.