What Are The Powerful Tax & Estate Planning Advantages?

For many individuals in the UK, the idea of leaving a charitable legacy is deeply personal and profoundly meaningful. Whether driven by heartfelt gratitude, a wish to create a lasting impact, or a desire to align your finances with your values, charitable giving offers a unique opportunity to make a difference. But the benefits of leaving to charity don’t solely lie in the emotional reward – they also provide powerful tax and estate planning advantages. Charitable giving doesn’t just benefit the causes you care about; it can reduce your estate’s tax burden and help fulfil your broader financial and personal goals. Here’s an in-depth look at how leaving to charity can work in your favour, as well as practical steps to make it part of your estate plan.

The financial benefits of charitable giving

1. Reducing your estate’s tax burden 

Inheritance tax (IHT) can significantly erode the value of your estate, leaving less for your loved ones. However, in the UK, charitable donations provide a key strategy for reducing this burden. Gifts to registered charities are exempt from IHT, meaning your donation passes to the charity in full, without any tax deductions. Additionally, if you leave at least 10% of the net value of your estate to charity, the inheritance tax rate on your remaining taxable estate drops from 40% to 36%. This can align with your philanthropic goals while simultaneously leaving more for your family or other beneficiaries. By incorporating charitable giving into your estate plan, you can strike a balance between supporting good causes and preserving wealth for your loved ones.

2. Aligning your wealth with your values 

Beyond the tax savings, leaving to charity allows you to direct your wealth toward causes you’re passionate about. Whether it’s supporting medical research, funding education, protecting the environment, or championing a local community project, charitable giving offers the chance to create a tangible, lasting impact. It ensures that a portion of your estate leaves a legacy that reflects your beliefs and values—one that lives on even after you’re gone.

3. Maximising lifetime giving 

While our focus is often on leaving a legacy after death, charitable giving during your lifetime can also offer significant tax benefits. Under the UK’s Gift Aid scheme, for example, donations made to charities can provide tax relief for both you and the charity receiving your gift. Incorporating lifetime giving into your broader financial strategy enables you to enjoy the benefits of your generosity while seeing the difference your contributions make.

Practical ways to leave to charity in your estate plan

If leaving a legacy to charity resonates with you, there are several ways to structure your giving within your estate plan. Here are some practical options to consider.

1. Making a charitable gift in your Will 

The simplest and most popular way to leave to charity is by including a gift in your Will. This could be a fixed sum of money (known as a pecuniary legacy), a percentage of your estate (a residuary legacy), or specific assets such as property or shares. Whatever you choose, ensure your intentions are clearly outlined in your Will to avoid any disputes or ambiguity. Working with Horizon to draft or update your Will is essential for legally binding charitable gifts. It’s also a good opportunity to confirm that the charity of your choice is registered, ensuring your estate qualifies for the IHT exemption.

2. Setting up a charitable trust For those wishing to leave a larger and more structured legacy, setting up a charitable trust may be an ideal solution. A trust allows wealth to be transferred to a charity — either immediately or over time — while giving you the ability to retain some control over how the funds are used. It can also offer flexible options for balancing charitable gifts with the needs of other beneficiaries, such as family members or dependents.

3. Donating tax-efficient assets 

Certain assets are particularly tax-efficient to leave to charity. For example, donating shares, property, or other investments can provide capital gains tax relief while reducing the size of your taxable estate. Consulting with Horizon will ensure you identify the most suitable assets to give, ensuring optimal tax-efficiency for both your estate and the charity.

4. Naming charities as beneficiaries on life insurance policies 

Another way to make charitable giving part of your estate plan is by naming a charity as the beneficiary of a life insurance policy. This ensures the policy’s payout passes to the charity tax-free, allowing you to create a lasting impact without reducing the inheritance left to your family.

5. Encouraging philanthropy among family members 

Integrating charitable giving into your estate plan provides an opportunity to foster a spirit of philanthropy within your family. You could involve family members in deciding which charities to support or create a donor-advised fund, enabling future generations to continue a legacy of generosity. Open conversations about your charitable goals can help ensure that your values are carried forward.

Take the next step in building your legacy 

Charitable giving is more than an act of generosity— it’s a strategic way to manage your estate, reduce tax liabilities, and contribute to the causes that matter most to you. Whether you’re preparing a new Will, updating an existing one, or exploring options like trusts and tax-efficient donations, thoughtful planning is key to making the most of your generosity. To ensure your charitable plans align with both your personal values and financial goals, seek guidance from us. We’ll help you craft a customised strategy that maximises the benefits for your estate, your loved ones, and the charities you cherish. Start planning today to leave a legacy that reflects your life’s passions, creating a positive and lasting impact for generations to come.

ARTICLES DO NOT CONSTITUTE TAX, LEGAL, OR FINANCIAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.

THE FINANCIAL CONDUCT AUTHORITY DOESN’T REGULATE WILLS, TRUST PLANNING AND MOST FORMS OF INHERITANCE TAX (IHT) PLANNING. SOME IHT PLANNING SOLUTIONS PUT YOUR MONEY AT RISK, AND YOU MAY GET BACK LESS THAN YOU INVESTED. IHT THRESHOLDS DEPEND ON INDIVIDUAL CIRCUMSTANCES AND THE LAW. TAX AND IHT RULES MAY CHANGE IN THE FUTURE.