Tax and VAT

Probate fees for charities accessing legacies doesn’t make sense

CFG has signed a letter to the Times with other charities about the proposals for probate fees to access estates, which could cost charities £18m a year according to the Institute of Legacy Management. We also wrote to the new Minister for Courts on their appointment about this issue. We thought that they were dead, but it looks like we may have only got a temporary reprieve.

This is a classic example of government not reaching out to the sector, and with the right hand taking away something that it gives with the left. The impact assessment for this proposal highlighted that charities would cost the sector, but said that it wouldn’t be ‘significant’. This clearly misses the growing importance of legacies as a source of income for charities and the fact that £18m a year is a substantial cost for charities. But it also doesn’t consider other tax reliefs that government gives.

At present, if you leave something to charity in your will, that money isn’t taken into account when calculating Inheritance Tax. Moreover, if you leave more than 10% of your estate to charities, you can reduce your Inheritance Tax bill from 40% to 36%. This is a positive signal from government that giving to charities is a good thing, and the tax relief is worth around £840m every year according to HMRC. However under this system, individuals would get tax relief for giving money to charity, but then charities would pay money to access those legacies. How does this make sense? You could argue that as charities are benefiting from incentives to increase gifts to the sector. But is it right that limited charitable income will be used to pay for the courts, rather than the much larger pool of individual private wealth? The sensible and pragmatic outcome would be for the government to recognise that it doesn’t make sense to charge charities for accessing legacy gifts that they are encouraging. Will that be the outcome? Only time will tell.

This post was last reviewed on 17 October 2018 at 15:53
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