Introduction »

When 10% is really 4%...

You may recall in the Budget earlier this year that the Chancellor announced a new relief for Inheritance Tax (IHT) purposes that could reduce your IHT liability by 10%. As always the devil is in the detail and what is actually proposed is a relief that could reduce your IHT liability by 10% from 40% to 36%, in effect a 4% reduction in the main IHT rate.

The proposals broadly mean that for deaths occurring on or after 6 April 2012, estates that include charitable legacies of at least 10% of the net estate will benefit from the reduced 36% rate. There are a number of technical points that determine if the charitable legacies 10% target has been met and we can advise you further on this area if this is of interest to you.

Here is an example of how the proposed new relief is to apply.

Mike has an estate valued at £850,000 upon his death. He was always an active supporter of Cats Protection and in his will he provided a legacy to them of £52,500.

If he died in 2011 the IHT liability would be calculated as follows:

The amount left for distribution to other beneficiaries, after accounting for the legacy and the IHT, would be £608,500.

If he instead died on or after 6 April 2012 (and the charitable legacy meets the 10% rule) then the estate would qualify for the reduced rate of IHT of 36%. This would result in a reduced liability of £170,100 leaving £627,400 available, after accounting for the legacy and the IHT, for distribution to other beneficiaries.

Introduction »