Legacies are an important source of income for many charities, and both lifetime and death transfers of property to a UK established charity are exempt from inheritance tax.
Gifts to charity are deducted from the value of the estate before applying the nil band and calculating the inheritance tax due, and there is no limit on the amount that can be donated. Many people arrange their affairs so that a part of their wealth passes to charity rather than to the government. Additionally, where at least 10% of the deceased’s net estate is left to charity, the rate of inheritance tax is reduced from 40% to 36% on the rest of the estate.
It is also possible for a beneficiary of a will to donate unwanted assets to charity via an instrument of variation. This must be done within two years of the death, and charity exemption can then be claimed for the donated assets.