Barely a day has gone by in recent weeks without Inheritance Tax (IHT) hitting the headlines. Jacob Rees-Mogg, Liz Truss and Nadhim Zahawi are among over 50 MPs who have written to the prime minister calling for IHT to be abolished. The Daily Telegraph is leading a campaign to bin the tax and Downing Street is reportedly holding talks about whether this proposal should be implemented in its election manifesto.
At Remember A Charity, our concern is that such a change to the IHT framework could have a considerable impact on legacy income, posing a risk to what has become one of the largest sources of voluntary income in the UK, raising £3.9bn annually.
With generous IHT incentives in place, legacy giving is around six times more prevalent on estates paying IHT (36% vs 6%) and generates half of all legacy income annually. So, it’s vital that any IHT proposal considers the potential impact on gifts in wills and the thousands of organisations who rely on that funding each year.
Understanding the current tax incentives for legacies
Currently in the UK, we have one of the most favourable environments for legacy giving globally. will-writing is relatively straightforward, people can support whichever charities they choose, and gifts in wills are tax-free, effectively increasing the IHT allowance on supporters’ estates.
What’s more, when people give 10% or more of their estate to good causes, this brings down the IHT rate from 40% to 36%, which can make a considerable difference to the overall tax bill. These incentives give supporters both the ability and impetus to give generously. It builds confidence in legacy giving, positioning it as a social norm. And crucially, it leads solicitors, will-writers and other advisers to raise the charitable option with clients.
Getting charitable giving front of mind during will-writing
It’s not the role of a solicitor or will-writer to promote specific charitable causes. However, these conversations between professional advisers and their clients can be fundamental in driving change by reminding people of the opportunity to give from their will at the very time when they have the opportunity to take action.
Research with the Behavioural Insights Team shows that even the simplest reference by a solicitor to the charitable option doubles the chances that a client will leave a gift. And, according to our professional adviser tracking study, IHT incentives are the most prevalent reason for raising the topic of legacy giving. 8 in 10 solicitors and will-writers say they always or sometimes discuss the IHT benefits with clients.
With charitable prompting becoming more deeply embedded in the Will-writing process – among advisers and online will-writing platforms, we’re seeing steady and continual growth in charitable wills. One in four professionally-written wills (24%) now include a legacy gift, a 50% increase since our tracking began in 2014, two years after the discounted IHT rate was first introduced.
A minority tax with maximum impact
IHT may be a minority tax – one that impacts just around 4% of estates each year – and yet, the impact of gifts from those estates are considerable. Supporters paying IHT account for around one quarter of all charitable estates and, as above, half of legacy income. And almost one in ten of all IHT estates include a gift of 10% or above, qualifying for the discounted IHT rate.
You might expect to see more charitable giving in the high-value estates, but without such an attractive tax framework, it’s unlikely that professional advisers would reference legacy giving as widely. Certainly, I’d question whether our consumer polling would be seeing such an uplift in the proportion of people saying they have left a gift in their will – up over 40% since the discounted IHT rate was introduced.
In this environment, where legacy giving is flourishing and where charities so urgently need that funding, we simply can’t afford to run the risk of jeopardising such a vital charitable income stream.
As a representative body for almost 200 charities that rely on legacy giving, we’ll be urging government and policymakers to consult with us, our partners and the wider sector to explore the impact of any IHT changes on gifts in wills and ensure that legacy income will be protected.
