Tax Benefits
St Edward’s School is a registered charity (no. 309681). Accordingly, all legacies made to the School attract reliefs (for the donor) for Inheritance Tax purposes and are exempt from Capital Gains tax.
The main benefit of the tax rules is that if charitable giving is at least 10% of the net estate then the estate is charged tax at only 36% instead of 40%.
This chart shows a gross estate of £1,000,000, and under four scenarios the impact of differing levels of charitable giving.
| Scenario 1 | Scenario 2 | Scenario 3 | Scenario 4 | |||||
|---|---|---|---|---|---|---|---|---|
| Gross Estate | 1,000,000 | 1,000,000 | 1,000,000 | 1,000,000 | ||||
| Nil rate band | 325,000 | 325,000 | 325,000 | 325,000 | ||||
| Net | 675,000 | 675,000 | 675,000 | 675,000 | ||||
| Legacy to charities as % of estate | 0% | 0 | 4% | 27,000 | 10% | 67,500 | 15% | 101,250 |
| Amount for Inheritance Tax | 675,000 | 648,00 | 607,500 | 573,750 | ||||
| Inheritance Tax | 40% | 270,000 | 40% | 259,200 | 36% | 218,700 | 36% | 206,550 |
| Total Amount after Tax | 730,000 | 740,800 | 781,300 | 793,450 | ||||
| Due to the Charity or Charities | 0 | 27,000 | 67,500 | 101,250 | ||||
| Available for residual beneficiaries | 730,000 | 713,800 | 713,800 | 692,200 |
- Scenario 1: No charitable legacy: all net estate is charged at 40%
- Scenario 2: If 4% of net estate, or £27,000, is given to charity, the net estate less the 4% is charged at 40%, leaving £713,800 for distribution to residual beneficiaries.
- Scenario 3: But if 10% of net estate, or £67,500 is given to charity, the net estate less 10% is charged at 36%, leaving the same amount, £713,800, for distribution. This means a further £40,500 can be given to charity with no effect on the amount available for distribution.
- Scenario 4: An example of a further amount left to charity, where the 36% charge continues to give benefit.
Please note: Estates vary in complexity and whilst these examples are true, we would always advise you to seek professional advice so that wording in your Will is correctly prepared and your wishes are carried out without hindrance.