The value of legacies to charities has risen as more people look to incorporate charitable giving into their estate planning.

Gifts to registered UK charities made during a donor’s lifetime, or left as a legacy in their will, are not included within the value of your estate for inheritance tax (IHT) purposes.

Many people choose to leave a legacy after they die, and it’s estimated that about a third of people aged 40 and over who already support a charity, and have made a will, include a charitable donation, with this number rising to around 50% of wealthier individuals. Last year the value of such donations rose to £980m, a £20m increase on the year before.

Solicitors report that this increase is partly due to people looking to reduce their IHT liability. Charitable giving is likely to see further growth as more individuals are affected when unspent pension funds fall into the scope of IHT from next year. A reduced rate of 36% applies to an estate where at least 10% of the net estate is left to a UK charity, rather than the full 40% rate.

Lifetime gifts

Gifting money to charity as a lifetime gift may reduce the value of your estate. But if you also use tax-efficient schemes, such as Gift Aid, you can maximise the value of this donation to your chosen charity. An estimated additional £560m a year could be generated through these schemes. Gift Aid allows registered UK charities to reclaim basic-rate tax on donations. The scheme means that for every £100 donated the charity receives £125, at no extra cost to you. What’s more, higher-rate taxpayers can claim the additional tax relief back for themselves – so it’s a benefit to donors too.

This doesn’t just apply to donations to major national charities such as Cancer Research or Oxfam. Gift Aid works for one-off payments, such as sponsoring a friend running a marathon, or can be added to annual memberships to museums, galleries and other arts institutions.

There are other tax-efficient ways to give to good causes. Some employers offer Payroll Giving, allowing you to make regular charitable donations from your salary before income tax is deducted, meaning higher-rate taxpayers don’t need to claim back additional tax relief through self-assessment.