Tessa Bonser
Senior Associate, Trusts & Estates Team at Stone King and Remember A Charity Campaign Supporter
Leaving a percentage or residuary gift in your will can maximise charitable impact, protect beneficiaries and reduce inheritance tax for UK estates.
Legacies (money left by individuals in their wills) are a vital source of income for UK charities. There are a few ways an individual can leave a charity legacy. Those looking to maximise the impact of their charitable donation should consider whether to make a residual or percentage gift, as opposed to a legacy of a set amount.
Why percentage legacies matter
Over 90% of the money left to UK charities by individuals in their wills is done so by way of a residual or percentage share of the estate, rather than a set amount by way of a legacy. Charities that receive residuary or percentage gifts will typically receive an amount around 10 times that of a donation given as a set sum. These donations can be transformative, providing charities with vital funds.
With legacies of a set sum, there is a possibility that, by the time the gift is made to the charity, the value will be less than originally intended. This is due to the ever-changing value of money over time with rising inflation.
A percentage gift means the
gift amount will change with
the value of an estate.
Balance in legacy giving
Another aspect to consider with a legacy of a set amount is that they are paid out from an estate first. This could mean that, should an estate fall in value, the gift to charity would come out first and reduce the amount that goes to the other chosen beneficiaries.
A percentage gift means the gift amount will change with the value of an estate — both up and down — ensuring all beneficiaries, both charitable and non-charitable, will receive a proportion of the estate.
Inheritance tax reduction
A significant benefit of leaving a charitable gift in a will, whether by a set sum or residuary gift, is a reduction in inheritance tax. Gifts to qualifying charities are exempt from inheritance tax. Broadly speaking, estates that leave 10% or more of their taxable value to charity benefit from a reduced rate of inheritance tax, paying 36% instead of 40%. Finally, always consult a legal professional before creating or making changes to your will.
