|Proposed Relief for Estates Where 10% or More Is Left to Charity|
The Chancellor, in his March 2011 Budget statement, announced a proposed new IHT relief: from April 2012 where a person on their death leaves 10% or more of their net estate to charity the rest of the estate not passing to charity will be liable to a reduced rate of IHT at 36% rather than the normal rate of 40%.The details of the proposed new relief were to be announced and finalized by HMRC following consultation.
A consultation document was duly published on 10 June 2011 requesting comments on the details set out in the document. The closing date for comments is 31 August 2011.
The STEP Technical Committee is reviewing the consultation document and a detailed response will be submitted. As part of the response STEP will propose a model clause that practitioners can adopt in advising clients who may wish to make use of the new relief.
A number of issues will need to be addressed in finalizing the details of the new relief including the following:
· the definition of the net estate to which the 10% threshold is applied. The consultation document proposes that the net estate should be the value of the estate after deducting the available nil rate band and relief’s such as agricultural property relief and business property relief;
· should all assets qualify for the relief or only those which can be realized and converted into cash without undue difficulty; And
· should the assets chargeable on death that can qualify for relief extend beyond assets owned outright and include, for example, assets in which the deceased had a qualifying interest in possession and assets subject to the gift with reservation rules.
It will be difficult for many people to know in advance the extent of the assets they would need to leave to charity in order to qualify for the new relief. It may be hard for them to predict the value of their estate at death and the make up of assets within the estate.
Apart from this there may be other concerns. The first is that a legacy defined by reference to the relief will fail if the estate turns out not to be me a taxable estate. Another concern is that a legacy drafted so as to qualify for relief might leave too much as a proportion of the estate if the estate on death was worth less than anticipated. In such a case there would be risk that the dependants of the deceased would be prejudiced.
The draft clause set out below is designed to provide for a legacy that would qualify for relief but which also contains optional provisos designed to address the two concerns mentioned. While of course the drafting will depend on the exact legislation that is passed comments on the draft clause below would be welcome.
I give to [name of charity] such assets to be selected by my executors which are not the subject of a specific gift and which shall have a net value for the purposes of inheritance tax equal to 10 per cent (%) of my net estate as defined in section [●] Inheritance Tax Act 1984 and my executors may appropriate assets to satisfy (or partly satisfy) this legacy without the consent of any beneficiary under my will or codicil.
[The legacy given by this clause shall in no event:
(i) be less than £[●] whether or not relief under section [●] Inheritance Tax Act 1984 shall be available; and
(ii) exceed £[●] even if in consequence of this restriction in the value of the legacy relief shall not be available under section [●] Inheritance Tax Act 1984.]
The opinions expressed do not constitute investment advice and specialist advice should be sought about your specific circumstances.
Published on our website on July 15, 2011