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Where Taxpayers and Advisers Meet
Institutes Criticise Government Proposals for IHT Break for Charitable Giving on Death
07/09/2011, by Lee Sharpe, Tax News - Inheritance Tax, IHT, Trusts & Estates, Capital Taxes
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The Chartered Institute of Taxation (CIOT) has criticised government plans announced in the 2011 Budget to reduce a person's Inheritance Tax (IHT) bill where they give some of their estate to good causes.

On 23 March 2011 the government set out proposals to encourage people to leave more to charities by reducing the rate of IHT to 36% when they leave 10% or more of the taxable value of their estate to charity.

This was followed by a consultation issued by HM Revenue & Customs on 10 June 2011 - A New Incentive for Charitable Legacies - which set out how it was thought the new proposals might work.

In reply to the consultation document, the CIOT has said:

  • The proposals are unnecessarily complex which is counter to stated government policy and will discourage people from using the new reliefs, and be difficult for estates managed by non-professionals to comply with the rules
  • The proposed relief fails to take into account the additional cost to the estate in terms of valuations and compliance which may result
  • By encouraging people to give more through their Will, they effectively discourage giving money during one's lifetime so charities may actually suffer.

The CIOT has found that currently, only 3% of money given to charities is through legacies left through Wills, etc., and far more through lifetime giving - it would be "disastrous" if lifetime giving were to fall as a consequence of the proposed incentives.

The CIOT has suggested that it would instead be far simpler to allow a 10% non-repayable tax credit against an estate's IHT bill where money is left to charity: every £9 given will yield a £1 reduction in IHT. Importantly, there would be no requirement that at least 10% of the estate be donated, so more modest legacies would still benefit.

Further details can be found in A New Incentive for Charitable Legacies - Response by the Chartered Institute of Taxation

The Chartered Institute of Accountants in England and Wales has come to similar conclusions - and make similar recommendations - in their report, which is at IHT: Charitable Legacies

About The Author

Lee is TaxationWeb's Articles & News Editor and writes for TaxationWeb. He is a Chartered Tax Adviser with experience of advising individuals and owner-managed businesses over a broad spectrum of tax matters.
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