What does inheritance tax mean for me?
If you are leaving your estate to your spouse or civil partner, you can pass this on without having to pay inheritance tax. This is because gifts between husband and wife or civil partner aren’t subject to this tax.
However, if you own your own home, you don’t plan to leave it solely to your partner, and it’s worth more than £325,000, it’s possible your estate might be liable for inheritance tax*
The default threshold for estates before they attract inheritance tax is £325,000 per person.
Right now, inheritance tax is set at a standard 40%, however you can reduce this to 36%. If you leave a gift in your Will to Combat Stress and it’s 10% or more of your net estate, you can reduce your potential inheritance tax liability from 40% to 36%.
How does it work?
Firstly, any gift you leave to us won’t count towards the total taxable value of your estate. This is called a “charitable legacy” … a gift in your Will.
To illustrate how this would work:
- Your net estate is worth £425,000
- You leave this to your partner, you are not married or in a civil partnership
- On the £325,000 default position, you would be liable for £100,000 taxable assets
- So, your estate would potentially have to pay a tax bill of £40,000 (ie: 40% of £100,000) leaving £385,000 to your beneficiaries
But if you wanted to reduce the tax bill by leaving a charitable gift to Combat Stress:
- To qualify for a reduction from 40% to 36% Inheritance tax you must donate 10% of your taxable liability, in this case £10,000 of the £100,000 to Charity.
- Your net estate is now worth £415,000 • Thus, the ‘net estate’ liable for Inheritance Tax is £90,000 (i.e. £415,000 minus £325,000) but is now taxable at a rate of 36% NOT 40%
- Your estate would now pay 36% on £90,000 worth of assets instead. This means that your estate would pay £32,400 in Inheritance Tax leaving £382,600 to your beneficiaries
£325,000- the estate amount you can pass on without attracting inheritance tax
£625,000- if you are married or in a civil partnership, this is the estate amount you can pass on without attracting inheritance tax
40%- this is the percentage you pay on your estate if it's above £325,000 (don't forget this includes your home)
36%- the percentage you can reduce your inheritance tax liability to if you leave a gift in your will to Combat Stress when it's worth more than 10% of your estate
Why should I make a Will and keep it up to date?
It’s easy to put off making a Will: there are so many immediate things to do. However, it’s worth bearing in mind some key reasons to make time:
- It makes it easier for your loved ones: having a Will means that sorting out legalites such as closing accounts and dealing with bills is a much smoother process.
- Your wishes are known and can be carried out: if you put in writing what you want to happen, you know eveything is clear.
- Help to minimise inheritance tax: with a will, you can help minimise the amount of inheritance tax your estate could be liable for.
- Protect your partner: if you aren't married or in a civil partnership, right now you don't have the same automatic rights as people who are. You can make sure your partner is looked after by naming them in your Will.
- The Crown could end up getting your estate: without a Will, it is possible your whole estate could end up belonging to the crown or government.
*When thinking about planning your Will, we do recommend that you get professional advice.
Ready to find out more?
If you would like to find out more, please contact our Legacy Team on 01372 587144 or you can email Sarah Seddon, our Senior Supporter Care Officer at firstname.lastname@example.org