The government has scheduled changes regarding inheritance tax laws and donations made to charity in a hope to boost charitable giving.
Presently, the inheritance tax threshold is set at £325,000 meaning that individuals' assets amounting above this figure are taxed at 40%.
The changes made by George Osborne, chancellor of the exchequer, will see a cut in this inheritance tax rate to 36% as long as 10% of an individuals' estate is left to charity. The changes are due to come into affect in April 2012.
Presently, there are some instances in which inheritance tax gifts can be given away tax free such as to certain exempt beneficiaries and organisations.
Charities are one group in which gifts can be given exempt from inheritance tax. Qualifying charities include both large institutions and smaller charities which have a HM Revenue & Customs charity reference number.
The new changes will mean that both charities and dependents will be able to benefit from a lower IHT rate.
Charities welcome the new decision hoping that the financial incentive will not only increase the amount raised from existing donations but also the number of future donations. It is important to state that whilst this is a boost for charities, beneficiaries as a result, will loose a proportion of their inheritance despite being taxed at a lower rate.
Announcing the decision in March this year, Osborne said: "Let's be clear. No beneficiaries will be better off. Just the charities."
Government accountants predict that charities will receive an extra £300m from the move.
The announcement came as part of the Coalition's 'Big Society' initiative which aims to build a stronger culture of philanthropy in the UK.
Osborne continued: "I want to make giving 10% of your legacy to charity the new norm in our country."
In order for to take advantage of this 10% drop in the IHT rate it is important to reiterate that 10% of the estate must be donated to charity. One problem facing the changes is that most donors leave a specific amount in their wills or trusts rather than a percentage.
Donors must be advised correctly when setting up a will or trust in order to utilise the changes, or alter will or trust deeds accordingly where possible.