Reduced rate of Inheritance Tax – Leaving 10% or more of net estate to charity

The Finance Act 2012 introduced a lower rate of inheritance tax (IHT) for testators who leave 10% or more of their net estates to charity.  The lower rate of IHT is 36%, instead of 40% and applies in relation to the estates of testators who die on or after 6 April 2012.

This lower rate can apply only if part of the estate is chargeable to IHT at a rate other than 0%.  In other words, where the value of a testator’s estate after deducting the available nil rate band, exemptions and reliefs would otherwise be chargeable to IHT at 40%, if 10% or more of this figure is passing to a registered charity then the rate applied will be reduced to 36%.

Careful consideration is to be given to the different aspects of this test, in particular the components of the estate to which it relates and the overall effect it would have on the distribution of your estate. For more advice please contact Emma Thorpe on 020 8502 3991 or emmathorpe@foskettmarr.co.uk