Inheritance tax (IHT) is charged at a rate of 40% on the value of an estate that exceeds the nil-rate band (NRB). The NRB is currently £325,000 per individual. There is provision for a surviving spouse to ‘inherit’ the unused allowance of their late husband or wife, potentially giving them double the NRB in force at the date of their death. Furthermore, where the beneficiary of assets under a will is either the surviving spouse or a charity, then there is an exemption from IHT.
A gift to a charity can be an effective way of saving the estate from paying some or all IHT. Normally this is achieved by a legacy of a fixed sum to a charity while leaving the rest of the estate to family or friends. Some people are concerned that a fixed gift may represent a greater proportion of their estate than anticipated if care fees have eroded their wealth by the time of their death. They may opt to combine charities and human beneficiaries as recipients of the residue of their estate, allowing them to gift percentages to all parties. However, mixing taxable and exempt beneficiaries could cause IHT problems so it is always a good idea to seek professional advice in this regard.