Inheritance tax alert as some Britons could pay reduced 36% rate – how to check

The threshold for paying inheritance tax currently sits at £325,000 and if an estate is worth over this, than people will pay a rate of 40 percent tax on the amount over it. So if a person’s estate is worth £400,000 then when they pass away, their loved ones will pay tax on the £75,000 over the threshold. There is no inheritance tax liability if a person’s estate is below this threshold. There are multiple ways that people can lower their tax liability legally, one way is by giving to charity.

According to the rules, if a person gives 10 percent of their net estate, known as ‘the baseline amount’, to charity, then they will pay a rate of 36 percent.

The legislation defines “given to charities” to mean assets that are given “if it becomes the property of charities or is held on trust for charitable purposes only”.

The exemption applies equally to both lifetime gifts and gifts on death.

People are able to donate either a fixed amount, an item, or whatever is left after other gifts have been taken out.

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The Government has an online tool which can work out how much a person will need to give to charity if they want to qualify for the reduced rate.

This is particularly helpful for those who are writing their own will.

It can even be used by the executor of the deceased’s will or administrator of their estate if the death was after April 6, 2012.

The calculator is not available for use to those whose death was before April 6, 2012.


If a person’s IHT charges are from the deferral of tax for woodlands or heritage assets, they also cannot use the online tool.

The tax on woodlands or heritage taxes is always 40 percent.

To use the tool, a person will need to know the value of the assets in the estate, how the assets are owned and the value of gifts the deceased made in the seven years prior to death.

Once the details are entered in then the tool will show how much a person needs to give to qualify for the 36 percent rate.

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HM Revenue & Customs (HMRC) have included a warning stating that it could not be held liable for incorrect output from the calculator so people need to make sure that the information that they have entered is correct.

Britons can only give to charities that a registered with the Charity Commission so people must ensure that the charity they would like to give to is a legitimate charity and a trustworthy setup.

People can give to charities not on the register however the organisation must fall under the definition of a charity according to the Charities Act, an example of this could be local sports club.

Britons are often urged to write a will which details their wants and wishes clearly so loved ones left behind know what to do once they have passed away.


If the donation to a charity is in their will, Britons should make sure that they have the charity’s correct name, registration number and address.

These details can be found on the Charity Commissions website.

This will ensure that the donation can go to the right organisation.

Britons are also told to be mindful of changes in value as people may give less than they intended to which may affect their inheritance liability.

This is due to inflationary causes which can mean the value of a person’s donation can either rise or fall.

This could mean that the amount a person is planning to leave may not hit that 10 percent threshold.


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