This month you may have taken advantage of Free Wills Month, to have a Will drafted for free by a participating firm of solicitors. If they have got a new Will, or even if they have an old one, it is worth reviewing it to check whether IHT will be due at 40% or 36% on death.
The reduced rate of IHT applies when at least 10% of the net estate is left to charities. This is the value of the estate after deduction of the nil rate band, and is also referred to as the “baseline amount” (IHTA 1984, Sch 1A). You can work out whether the 10% gift threshold will be met by using the IHT reduced rate calculator.
Some solicitors are not aware that the 10% threshold relates to the net estate rather than to the gross value of the estate, and may have drafted the Will incorrectly.
For example, if the Will says the estate should be divided as: 40% to person A, 40% to person B, and 10% to charity, that will result in 10% of the gross estate going to charity rather than 10% of the net estate. For an estate worth £550,000 this would mean the charitable gift would be £55,000 rather than £22,500= 10% x (550,000-325,000).
If the Will doesn’t mention specific gifts to charities, those gifts may be included in the expression of wishes, which is a personal letter from the testator to his executors which is normally kept with the Will.
Any Wills made before April 2012 are unlikely to include specific provision for 10% of the net estate to be given to charity, as the reduced rate of IHT came into effect for deaths on and after 6 April 2012. STEP have made available a model clause to use in a Will to ensure the minimum charitable gift is made.
When reviewing a Will it is also worthwhile checking whether all the executors named are still alive and have capacity to act. Also check that the names and addresses of all the beneficiaries mentioned in the Will are correct.
Written by the Tax Advice Network