BWB’s Charity Legacies, Trusts & Probate Disputes team continues to be busy with a wide range of legacy-related matters. Highlights this month include recovering a charity legacy wrongly paid to a third party by a professional executor, and advising a potential beneficiary of a large trust fund where proceedings have just been issued by family members.
If you require any advice or assistance with any of your legacies, the team would be happy to hear from you.
Summer Budget 2015
In the first Conservative-only budget for almost two decades, the Chancellor of Exchequer announced a potentially significant change to estates by increasing the amount that some people can leave free of inheritance tax on death.
Currently, individuals can leave up to £325,000 free of inheritance tax on death. Any value over that threshold is generally subject to inheritance tax at 40%, save for gifts left to spouses, civil partners or charities, which are exempt from inheritance tax, and availability of other reliefs.
However, following tax changes made a number of years ago, married couples and civil partners are able to pass on any unused nil rate band allowance to their surviving spouse or civil partner, meaning that the surviving spouse or civil partner’s estate can be worth up to £650,000 before any inheritance tax is due.
The new proposals will go further. From April 2017, parents will benefit from an additional nil rate band amount, the so called “family home allowance", if they leave their home to direct descendants. This additional nil rate band will be £100,000 each for the tax year 2017-18, rising to £175,000 in 2020-21. This means that married couples and civil partners can potentially leave property up to £1 Million to their children free of inheritance tax.
Will this impact on legacies to charities?
It remains to be seen if this will impact on legacies to charity. If more estates are taken out of the tax net, then one motivating factor in legacy giving – tax incentive – may be reduced.
With the average estate falling well short of the current £325,000 threshold already, it may not have a huge impact. But, alongside this extension of inheritance tax relief, which will only apply to gifts to direct descendants, the Government has also frozen the nil rate band at £325,000 until April 2021, meaning more people are likely to fall into the inheritance tax net and so potentially consider leaving a legacy to charity to reduce tax.
Those owning property in London and the south-east are likely to see most benefit from the new relief, with over half the UK’s total tax inheritance revenue coming from this part of the country. But with house prices continuing to rise, it may be that many more homes will soon exceed £1 Million.
Many of our charity clients receive legacies with a Scottish connection, perhaps because the testator was domiciled in Scotland or because the estate includes Scottish assets.
Of potential impact to charity legacies are the Scottish rules which provide protection from disinheritance for the deceased person’s spouse/civil partner and children. Spouses/civil partners and children have certain “legal rights” to moveable property (but not immoveable property e.g. the deceased’s house or land) which, if exercised, can override the terms of the Will. We recently helped a charity where the deceased had chosen to leave all his estate to our charity client and his son invoked his legal rights, reducing the value of the charity legacy.
The Scottish Law Commission has recently reviewed Scottish succession law, and recommended changes. The Scottish Government is now consulting on the proposals which include issues such as what happens when there is no will, further protections for cohabitants as well as protection from disinheritance.
Of particular interest to charity legacies, the recommendations include proposals that “legal rights” are replaced with a right for spouses/ civil partners and issue to claim a fixed share of the estate irrespective of its nature, so the moveable/immoveable property distinction would fall away, and for dependent children to be able to claim a capital sum payment. On the face of it, this is likely to reduce the amount that Scottish testators are free to leave to charity if, as is common, the main asset is their home.
The consultation ends on 18 September 2015.
Managing and protecting your legacy income
Our recent seminar in conjunction with Legacy Foresight and leading charity accountants, Kingston Smith, was a huge success, with a diverse delegate list ranging from large charity CEOs to small charity trustees. The seminar provided a practical guide to legacy income, focussing on accounting for legacies under the new SORP with input from Ray Jones, formerly head of accounting policy at the Charity Commission, and dealing with challenges to your charity’s legacy income.
If you were unable to attend and would like more information on these issues, please contact us at firstname.lastname@example.org and we would be pleased to send you a copy of the seminar pack.
Also feel free to get in touch to find out about our future events.
Save the date!
BWB's Annual Charity and Social Enterprise Tea Party will take place on Wednesday 23 September. Details to follow shortly.
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Posted on 21/07/2015 in Legal UpdatesBack to Knowledge