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Will the budget impact on legacy income?


In his budget statement, the Chancellor announced an increase in the level of inheritance tax allowance of £175,000 per person, to add to the current £325,000 allowance, both of which can be transferred to the surviving spouse. This gives a married couple a combined inheritance tax allowance of £1 million, effectively taking the vast majority out of death duties. The additional allowance is linked to the family home, which is usually the main asset within an estate. So what will the impact of this measure be on charities?

While saving tax is not a major motivation for most people when considering leaving a legacy to charity, for a minority (and especially those who habitually arrange their affairs to minimise their tax liability and enjoy the challenge of avoiding tax wherever possible) it will be a factor. From now on, many of these tax aware people will not have to worry about inheritance tax at all and therefore for them the motivation to save tax on their estate by leaving money to charity has gone.

This said, there may be a more positive psychological effect of the budget change. If couples suddenly have an allowance of £1 million, they may well feel they can afford to be generous to their favourite causes.

The budget change gives charities an excuse to talk to supporters about inheritance tax, which can be a useful reminder to them of the legacy option. The changes, which come into effect in April 2017, will prompt some people to revise or change their will, so charities need to be stepping up their legacy marketing between now and then to catch those in this position.

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