Today marks the start of Remember a Charity week, when charities across the UK campaign for people to consider including a donation in their will.
There are many reasons you might want to leave a gift to charity. As well as helping a good cause, it could also reduce your inheritance tax burden.
But you should think carefully before giving up a portion of your estate to charity. Without planning, you could end up forfeiting more than you’d like.
Here are eight things to consider when leaving a donation in your will.
- Need help making a will? Get yours written from £99 with Which? Wills.
1. You don’t have to leave a lump sum
You don’t have to donate a fixed sum of money. You could give away a proportion of your estate or specific items, such as an antique, a piece of jewellery or a work of art.
You could also leave a reversionary gift, which first passes on to a loved one and then to the charity after they die.
- Find out more: what to put in your will
2. Remember the tax advantages
A gift to charity is free from inheritance tax (IHT), which is charged at 40% on any estate worth more than £325,000.
But if you leave 10% or more of your net estate to charity, you will benefit from a lower inheritance tax rate of 36%.
This means, in some scenarios, donating more to charity could actually lower your IHT bill, which could mean you have a bit more to leave to your beneficiaries overall.
However, this depends on how much your estate is worth in the first place, as well as the size of your donation. Always seek advice before gifting to charity for the purposes of avoiding inheritance tax.
- Find out more: inheritance tax planning
3. Make sure it counts as a charity
It’s worth seeing if a charity is registered with the Charity Commission to ensure they’re a trustworthy organisation. You can search for registered charities here. In Scotland, there’s the Scottish Charity Register (oscr.org.uk/) and the Charity Commission for Northern Ireland (charitycommissionni.org.uk).
That said, the charity doesn’t have to be registered for you to benefit from inheritance tax advantages. Even if you leave the money to your local football club, these advantages apply as long as the group matches the definition of a charity laid out in the Charities Act.
- Find out more: In March and October, some charities offer to write your will for free in exchange for a donation. Check out our guide on free wills for more information.
4. Consider adding instructions for your gift
You might want the charity to use your gift to fund a specific service or area of their research. If so, you should include instructions in your will.
Always discuss these instructions with the charity beforehand. If your wishes aren’t feasible, they could be ignored.
- Writing a will may seem straightforward, but most people need professional help to make sure their language is as clear and unambiguous as possible. Which? Wills can help you draft yours or write the will for you.
5. Be mindful of changes in value
If you promise a fixed sum to a charity and inflation causes prices to rise, then you could end up donating less than you intended.
You can include a clause in your will that index-links the gift, preserving its worth against possible inflation increases. Which? Legal can help advise you on index linking.
Similarly, if you add a percentage donation in your will and then your estate changes significantly in size, the amount you leave behind could be disproportionate. Always monitor your estate to check that you’re not giving away more or less than you actually want.
- Find out more: how to make a will
6. Be careful leaving a residuary gift
Sometimes people choose to leave some or all of the residue to charity. This is what’s left of the estate after all legacies, debts and expenses have been settled.
However, splitting the residuary estate between multiple parties means that they might not all get an equal share. For example, if you give some of your residuary estate to a charity (exempt from inheritance tax) and the rest to a family member (not exempt), then that person could end up receiving less because the tax will be deducted from their portion. Bear this in mind when considering what kind of gift you want to leave.
- Find out more: how to avoid inheritance tax
7. Make sure you’ve got the details right
A lot of charities have similar names. A charity could also change its name or close down.
For the sake of clarity, make sure you also include their registration number and address if you do decide to leave a gift in your will. You can find these details through the relevant Charity Commission or GuideStar.
8. Could your gift cause a legal dispute?
Some family members might be fine with you donating a portion of your estate to charity, but others might not.
Under the Inheritance Act, a beneficiary could dispute your will if they believe it didn’t make sufficient financial provision for them. They could also argue that you weren’t of sound mind or that you were coerced into making the will.
To avoid a painful and expensive legal dispute after your death, think carefully about whether your donation could create rifts within the family.
- Find out more: what can cause a will dispute?