Inheritance and capital gains tax

Find out how tax could affect what you leave in your Will, and how a gift to charity could change your tax liability.

Inheritance tax

Under current law, if your estate is worth more than £325,000, your beneficiaries will have to pay 40% of the part of it that’s over the threshold to HMRC.

So if your estate is worth £350,000, £25,000 of it is liable for inheritance tax, and your beneficiaries must pay £10,000 (40% of £25,000) to HMRC.

The threshold and the rate change from time to time, so check the current figures on the gov.uk website.

What if you leave money to charity?

There are two ways leaving a gift to charity can help reduce your inheritance tax bill.

1. If you leave gifts to charity in your Will, the gift value won’t be counted towards inheritance tax. The same goes for gifts left to your spouse. This could reduce what your beneficiaries have to pay, or remove your inheritance tax liability altogether.
2. In April 2012, inheritance tax legislation changed, meaning in some situations, anyone leaving 10% or more of their taxable estate to charity may qualify for a reduced rate of inheritance tax – 36% rather than 40%.

To find out more about inheritance tax and estate planning, talk to your solicitor to see how the rules might affect you and your loved ones.

Capital gains tax

This type of tax is usually payable if you sell or give away something that has increased in value during the time you owned it. The increase in value is what is taxable.

When someone dies the value of the things they own is re-established and any gains that arise during the administration of the estate (i.e. between death and sale) may be liable to capital gains tax.

Executors have a tax free allowance that can be used to offset gains. See the current capital gains tax allowance.

Charities are exempt from capital gains tax, so where charities are beneficiaries in a Will, it may be possible to use this exemption to benefit the whole estate. Please contact the Legacy Team to find out how to do this on 0300 123 1862. Lines are open Monday-Friday 8am – 6pm.