It surprised many to hear that in the 2023 Spring Budget announcement, HMRC declared that certain reliefs on gifts made in Wills left to non-UK charities would be removed with immediate effect.
What does this mean in terms of Inheritance Tax (IHT) and Will planning?
Previously, donations to EU/EEA charities were exempt from IHT. This meant lifetime gifts to many overseas charities could be made without any risk that the sums gifted would reduce an individual’s Nil Rate Band (the amount up to which an estate has no IHT to pay). With the withdrawal of this relief, such donations will now be classified as chargeable lifetime transfers for IHT purposes. Consequently, these gifts may incur lifetime IHT charges, and additional IHT may become payable if a donor passes away within seven years of the gift.
Another consequence is if a specific charitable legacy has been written into a Will in favour of an EU/EEA charity, the cost of the withdrawn tax relief will likely be borne by the residuary beneficiaries of the estate.
Who will be impacted?
Anybody who has left a gift to a non-UK charity should review their Will as the impact may be that the additional cost of the withdrawn tax relief is borne by the estate’s residuary beneficiaries. This might not be what the Testator intended. They may wish instead for the non-UK charity to bear the burden of the tax instead.
Individuals who have relocated to the UK from Europe and are subject to UK IHT regulations are most likely to feel the impact. Likewise, UK expats living in Europe may also be caught out. Expats can still be liable for IHT in the UK on their global gifts, and some may mistakenly believe that a gift to a European charity remains exempt from IHT.
This blog was written by Donna Mahoney, a Senior Manager at Price Bailey. If you are an affected taxpayer we can support you in reviewing your Will to assess the impact of this change. You can contact Heidi using the form below.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.
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