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Find out more'Could donating to charity lower my inheritance tax bill?'
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Samantha specialises in personal taxation and trusts. She enjoys being able to demystify these complex areas.
I’m aware that the residence nil-rate band for inheritance tax tapers away if the estate exceeds £2m.
If on death, 10% of the estate is left to charity, will this also reduce the estate value when calculating the taper on the residence nil-rate band?
Keith from London
'There are lots of benefits to donating, but this isn't one of them'
Samm Galloway, Which money expert, says:
Although making charitable donations can reduce the value of your estate below £2m, they won’t be taken into consideration when calculating the residence nil-rate band (RNRB).
The RNRB is a £175,000 extra inheritance tax-free allowance per person for those leaving their main home to a direct descendant. It tapers away by £1 for every £2 that the estate exceeds the £2m threshold, so an estate valued at £2.35m or above won’t receive any RNRB.
The taper is calculated before any gifts to charity are counted.
Only donations in your will – if representing 10% or more of your taxable estate – can get you the reduced rate of inheritance tax
Donations to registered UK charities made during your lifetime would reduce the value of your estate. And, unlike donations in your will, the charities could benefit via the gift aid scheme.
However, only donations in your will – if representing 10% or more of your taxable estate – can get you the reduced rate of inheritance tax (36% rather than 40%) on the rest of your estate.
In either case, the donation itself is exempt.
Whether donating in your lifetime or via your will makes more financial sense will come down to the size of your estate and the size of the donation.
- Find out more: Should you donate to charity in your will?
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