The proposed changes, if adopted, could reduce the need some British taxpayers currently feel to avoid having significant assets subject to UK inheritance tax.
Under the proposal, which had first been mentioned in the Budget back in March, the rate of IHT would fall to 36% when individuals left more than 10% of their estate to charity. Currently IHT is 40% above the nil rate band. The 10% charitable legacy would be based on the value of the deceased individual’s estate after IHT reliefs and exemptions were deducted.
The Society of Trust & Estate Practitioners (STEP) immediately responded to the Treasury consultation with a statement that the IHT charity relief could “reinvigorate the Big Society”.
STEP chief executive David Harvey called the proposed changes to IHT taxation “innovative”, and said that if they were sensibly implemented, they could “succeed in significantly driving forward charitable giving” in Britain.
“At present, only one third of advisers bring up the question of charitable giving when drafting wills, but we think this new policy has the potential to increase that figure to near 100%,” he added.
“If this talk turns into action and people start leaving legacies in higher numbers, then that may help reinvigorate the Big Society.”
PKF (UK), the accountancy, described the proposed IHT relief as "welcome news for individuals and not-for-profit organisations", but noted that "education about the detail of the incentive will need to be considerable for the new measures to be most effective".
"The problem is that donors tend to leave specific amounts in their wills, rather than giving a percentage or share of their estate," said PKF tax director Sarah Campbell.
"So donors’ families may miss out on the tax break unless donors are advised correctly and leave at least 10% of their estate to charity."
In announcing the release of its consultation, HM Revenue & Customs pointed out that relatively few individuals actually pay IHT tax, once all their exemptions have been taken into account. "In 2010-11 it is projected that of 552,000 deaths, only 3% of estates will actually pay any inheritance tax," HMRC said.
The 32-page consultation, called A new incentive for charitable legacies, is available on the HM Revenue & Customs website, which may be accessed by clicking here. The closing date for comments is 31 August. If the plans are adopted, the changes would apply to deaths occurring on or after 6 April 2012.
The Treasury has also published a consultation on Patent Box and Research & Development tax credits. The proposals will see a 10% corporation tax rates applied to profits attributed to patents from April 2013 and will aim to simplify the current R&C tax credits system.
The Government said it hoped the changes would make the UK’s tax system “the most competitive in the G20” and “make the UK the best place in Europe to start, finance and grow a business.”
