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Inheritance tax and charitable legacies: consultation document

Published 17 June 2011

In the March 2011 Budget the Government announced a new reduced rate of inheritance tax (IHT) of 36% for people leaving 10% or more of their ‘net estate’ to charity. This will apply to deaths on or after 6 April 2012. The ‘net estate’ for this purpose is the amount that is liable to IHT after deducting applicable exemptions and reliefs and any available nil-rate band.

Under these new rules, leaving legacies to charities will still reduce the amount available for other beneficiaries, but not as much as at present. The relief may therefore encourage people who already intend to leave gifts to charities to increase the amount in order to reach the 10% limit.
 
The basic outline of the relief has already been decided, but on 10 June 2011 HMRC issued a consultation document seeking views on a number of detailed issues as follows:
 
  • Various options are put forward for the treatment of assets that are charged to IHT on an individual’s death in addition to his or her own ‘free estate’, such as assets that the deceased had given away with a ‘reservation of benefit’ and certain life interests in settled property, together with jointly-owned property that has passed outside the deceased’s will or intestacy.
  • Under existing rules no IHT is due on a bequest to a charity, so where the bequest takes the form of a non-monetary asset it is not necessary to determine its precise value. Under the new rules the value of such an asset may affect the rate of IHT charged on the remainder of the estate, so it becomes much more important to determine this accurately. The document considers whether, for administrative convenience, only gifts to charities of easily realised assets such as cash, quoted shares or land and buildings should count towards the 10% limit. It also explores the possibility of tax avoidance by the manipulation of asset values.
  • Other issues addressed are: the treatment of Instruments of Variation of wills; HMRC forms and guidance; possible implications for the drawing up of wills; the impact on estates that are eligible for reliefs that defer rather than eliminate the IHT charge (such as those for national heritage property or woodlands); amendments to IHT liability as a result of events after death; non-UK domiciled individuals and the allocation of exemptions between different assets.
 
Comments are requested by 31 August 2011. Read the full document here.
 
Once the formula for the calculation has been published, we would be pleased to advise clients who are interested in taking advantage of this reduction in the rate of IHT by making charitable gifts on death.
 

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