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Legacies and tax

A gift in your will can save you tax.

Currently, everyone has an inheritance tax allowance of £325,000, below which no tax is paid on the value of their estate at their death. Above that level, apart from gifts to spouses, civil partners and charities, which are tax free, the value of the estate is taxed at 40%.

So, for example, an estate worth £425,000 is £100,000 above the allowance and potentially liable to suffer £40,000 in tax.

There are two other important issues to note here. Firstly, surviving spouses and civil partners are able to retain any unused allowance, giving them a potential combined inheritance tax allowance of £650,000 at the second death, above which tax is then paid at 40%.

Secondly, the Chancellor has introduced an additional measure, whereby the rate of inheritance tax is reduced to 36%, if 10% of the net estate is left to charity.

One way to reduce your tax liability is to include a legacy to a charity in your will. For every £10,000 above the threshold that is left to charity a tax saving of £4,000 is made. Your solicitor will be able to give more detailed advice about inheritance tax and how to reduce your liability in your will.

To calculate the value of your estate, download the estate calculator here. (word, 579KB)

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