Charities

Generous people, generous government

UK tax policy encourages people to leave money to charity, and there are plenty of charities - more than 150,000 in England and Wales - who will happily receive your largesse. Charities rely on legacies - and on rules allowing most gifts to charities to be free of inheritance tax.

Gifts made to a UK charity either before you die or in your will are usually exempt of inheritance tax. Some charities are not exempt of IHT. It pays to double-check.

IHT exemption means that if your estate is valued at £500,000 and you leave £100,000 to a qualifying charity, your estate is then valued at £400,000. It is simple subtraction: the amount of the charitable gift is deducted from the value of your estate. You pay less tax, but your estate reduces by the amount of the gift.

Specific legacy or leftovers?

Pecuniary bequests You pledge money (a specific sum or a percentage of your estate) to a particular charity.

Residuary bequests The amount that remains after the gifts, bequests and some expenses are accounted for is the residue. One or more charities can share the residue.

What if the charity 'predeceases' you?

Charities can merge, even die. If you leave a gift to a charity that merges and changes its name, your gift might fail. Similar problems arise if the charity ceases to exist - the entity you named simply is not there any more. When you write your will, provide for alternatives in the event that the charity you specify no longer exists when you die.

Instead of, or in addition to, naming a specific charity in a will, you can add a clause indicating that the gift should go to charities of a certain sort - benefitting cancer research or cats, for example.

Case Study: Margaret Allan (1917-2007)

As her long and eventful life neared its end, widow Margaret Allan had one cat and only one relative - and he was distant geographically as well as by blood: her half-sister's grandson, resident in Norway.

Closer to home, she had many friends, a village full of them. When she died in 2007 at the age of 90, she left a decent chunk to just about all of them.

Margaret and her late husband Harry, a Foreign Office official, lived in Solva, an attractive Welsh waterfront village in St Bride's Bay in Pembrokeshire. They used to holiday there, and after Harry retired, they made their permanent home there.

In 1990, about ten years after moving to Solva, Harry died. Margaret remained, comforted during her initial widowhood, and helped during later infirmities, by many neighbours and local friends. To thank them, she gave legacies to many villagers and village institutions via an elaborate will that also provided for her cat and other animals, and other recipients. She gave £10,000 to her relative in Norway.

Brutus – her ginger cat – was adopted by neighbours. In her will, Mrs Allen gave "To any person whom the executors agree to taking care of my cat to avoid it being put down or going into a cattery - the sum of £3,000.”

She left £25,000 to be divided among her carers, and up to £10,000 to several close friends. In addition to named individuals, she also left a sum to be divided among the village elders – to qualify, they had to be at least 60 years old and resident in the village for more than 20 years. Some 120 people will receive about £500 each.

The local memorial hall, churches and football club, the Pembrokeshire Conservative Association and the village surgery were also beneficiaries, as was the Solva Luncheon Club. She directed that her £5,000 gift to this club was to buy drinks at Christmas.

With Brutus provided for, she also gave money to local cat, dog and badger charities.

Case Study: Mona Webster (1913-2009)

Birds and opera were Mona Webster's two great passions, and she gave generously to both in her will.

The birds enjoyed her largesse tax-free. The gift to the human warblers was greatly reduced by inheritance tax.

Mona Webster was born on the Isle of Man - her father was the keeper of the Douglas Head lighthouse. The family moved to Orkney while she was still a girl, and it was there that she developed a lifelong passion for birds.

After Orkney she lived in Edinburgh and then resided with her husband in London. Later in life she returned to Edinburgh, where she died a widow.

She and her husband Ted had no children. He was an investment manager, and their own investments were managed quite well. At her death, Mona was worth about £10m.

Among her favourite activities, Mona Webster travelled the world, looking at birds and listening to opera. She had a particular warm spot for New York's Metropolitan Opera, which broadcasts live Saturday matinee performances. Mona was a devoted listener (early evening in Scotland) and attended live performances when her travels took her to New York City.

Mona Webster's main beneficiaries were the Wildfowl and Wetlands Trust and the Met - she gave several million pounds to each. She made a smaller gift to Covent Garden. Gifts to charities are normally tax free. However, the Met is a foreign charity and, as such, that gift was subject to IHT.

Mona also allocated £825,000 for various donations and gifts, and left her Edinburgh home (value c. £550,000) to friends. Harking back to her childhood and her father's vocation, she also remembered the RNLI (Royal National Lifeboat Institution) in her will.

Was she aware of the tax that would be levied on her gift to the Met? In addition to her investment-savvy husband, Mona Webster herself worked for the Inland Revenue, the precursor to HMRC. She had given generous gifts while she was alive, and she presumably knew exactly what she was doing with her will.