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Changes to Inheritance Tax with effect from 6 April 2012


With effect from the 6th April 2012, the Chancellor has introduced a reduced rate of Inheritance Tax.
If you leave 10 per cent or more of your estate to charity on death, the rate of inheritance tax on the part of your estate that is chargeable will be reduced from 40 per cent to 36 per cent.

These proposals broadly mean that for deaths occurring on or after 6 April 2012, estates that include charitable legacies of at least 10 per cent of the net estate will benefit from the reduced 36 per cent rate.
Inheritance tax is currently only paid on estates worth more than £325,000. An estate of £1m therefore would currently see beneficiaries receive £730,000 with the taxman taking £270,000. If, however, 10 per cent of that estate above the £325,000 threshold is given to charity, the beneficiaries would only receive £713,800 and the taxman would take £218,700. The charity in this instance would receive £67,500.

It is estimated that these changes will cost the Government £25m in the tax year ending 2013, £75m in the following year and £125m in the year after. This is based on the assumption that this measure will result in charities receiving an extra £300m over three years through this measure. This comes at a time when morale among employees in the voluntary sector has, apparently, hit an all-time low according to a survey by Birdsong Charity Consulting in partnership with ‘Third Sector’.

Just 29% of respondents said morale in their charity is high, which is down 14% since 2011 and the greatest fall since the survey began in 2007. In addition, 38% of respondents said their senior management is out of touch and just 56% would recommend their organisation as an employer, down from 70% in 2011. Frances Hurst of Birdsong said: “We are now seeing in charities what other sectors have experienced over the past few years since the economic downturn.”

George Osborne said: “If you leave 10% or more of your estate to charity, then the Government will take 10% off your inheritance tax rate. Let’s be clear, no beneficiaries will be better off – Just the charities to the tune of £300million. I want to make giving 10% of your legacy to charity the norm in our country.”

Michelle Mitchell, Charity Director at Age UK said: “For Age UK and other charities, the changes in inheritance tax will come as a welcome boost in financially challenging times.”

As with most tax breaks there are certain conditions that need to be met in order to make a successful claim for this reduction. In particular, to establish whether or not the relief applies, your estate will need to be broken down into three components: assets owned outright, joint assets and trust assets. It is advisable therefore to seek expert advice. Speak to Bright Solicitors today to see how we can help.