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Inheritance tax incentive for charitable legacies: consultation

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HMRC are seeking views on a proposal to apply a reduced rate of inheritance tax to estates that include charitable legacies of at least 10% of the value of the net estate.

For deaths on or after 6 April 2012, such estates will pay IHT at 36% instead of the main rate of 40%.

The 10% test will be determined by comparing the value of charitable legacies and the value of the net estate for IHT purposes as reduced by any available nil-rate band; the value of assets passing to a surviving spouse or civil partner; and other IHT reliefs and exemptions such as business property relief.

The Treasury said at Budget 2011 that the new relief would be designed so that the benefit of the tax saving is 'reflected in the bequests received by charities and not in payments to other beneficiaries'.

The views of charities and advisers on wills and inheritance would be particularly welcome, HMRC said. Comments are invited by 31 August.

The proposal is part of a package of reforms that Justine Greening, the Economic Secretary to the Treasury, described as ‘the most radical and generous reforms to charitable giving for more than twenty years’.

The vast majority of estates are not liable to IHT. ‘In 2010/11 it is projected that of 552,000 deaths only 3% of estates will actually pay any inheritance tax,’ HMRC said.

Issue: 1081
Categories: News , IHT , Private client taxes