MTTM Podcast Episode 522 – Wills, Charitable gifts & Marriage – the IHT benefits & pitfalls

Listen to Episode 522

In this week's episode, I explain how leaving a gift to charity in your will can significantly reduce your inheritance tax (IHT) bill. We break down the rules and explore the most effective ways to structure your donation. Next, I reveal a little-known legal trap that affects anyone who gets married and could result in your estate being distributed according to the rules of intestacy.

With October being 'Free Wills Month', it's a good opportunity to consider your estate planning. Eligibility is for those aged 55 and over. For those who don't qualify, Money to the Masses has an offer where you can save 20% when you complete your will with Farewill*. Farewill is rated 4.9 out of 5.0 on independent customer review site Trustpilot (from over 18,000 reviews).

Support the podcast

Remember to like, subscribe and follow us on all our socials. You can also support the Money to the Masses podcast by visiting our dedicated podcast page.

Every time you use a link on the page we may earn a small amount of money for our podcast. We only use affiliate links that give you an identical (or better) deal than going direct. Thank you for being an incredible part of our community. Your support means the world to us.

Watch the video version of the podcast below:

Listen to other episodes and follow the show by searching 'Money to the Masses' on Spotify or by using the following links:

Listen on iTunes    Listen on Spotify     via RSS

Episode 522 Podcast Summary

How to Cut Your Inheritance Tax Bill by Gifting to Charity

Summary

I explore the powerful impact of leaving a gift to charity in your will, both on the cause you support and on the tax efficiency of your estate. First, any gift left to a UK-registered charity is 100% exempt from IHT. Second, if you gift at least 10% of your net estate, the IHT rate on the rest of your estate is reduced from 40% to 36%. I provide worked examples to show how this can mean a charity receives a significant donation at a relatively small cost to your beneficiaries. Finally, I outline the three main ways to leave a gift - pecuniary, specific, and residuary - and explain why a residuary gift is often the most flexible and effective option.

Key insights

• Gifts are tax-free: Any amount you leave to a UK-registered charity in your will is completely exempt from inheritance tax.
• The 10% rule: If you leave at least 10% of your 'net estate' to charity, the IHT rate on the remaining portion of your estate is cut from 40% to 36%.
• Cost-effective giving: Due to the tax benefits, the final cost of the donation to your beneficiaries' inheritance is often much lower than the amount the charity receives.
• Choose the right gift type: A 'residuary gift' (a percentage of your estate after all other gifts and costs) is often the best approach as it is inflation-proof and protects the inheritance of your other beneficiaries.
• Take action with a will: The first step is to have a valid will. Campaigns like Free Wills Month (held in October and March) offer a free simple will-writing service for those aged over 55.

Warning: Getting Married Automatically Voids Your Will

Summary

I highlight a critical legal trap that many people are unaware of: in England and Wales, the act of marriage or entering a civil partnership automatically revokes any will you made previously. Research from Will Aid reveals that 56% of UK adults are unaware of this rule. This can lead to serious unintended consequences, especially for those in "deathbed marriages" designed to mitigate IHT, or for anyone who simply forgets to update their documents after their wedding. If your previous will is invalidated and you don't create a new one, you will be considered to have died 'intestate'. This means your assets will be distributed according to a rigid legal formula, which may not reflect your wishes and could leave your beneficiaries in a difficult position.

Key insights

• Marriage revokes a will: Under the Wills Act 1837, getting married or entering a civil partnership in England and Wales automatically invalidates any will made before that date.
• Widespread ignorance: Over half of the UK population is unaware of this rule, putting a huge number of people at risk of dying without a valid will.
• The danger of intestacy: Dying without a will means your estate is shared out according to strict legal rules of intestacy, which dictate who gets what and may not be what you would have wanted.
• Action is required: It is essential to create a new will as soon as possible after you get married to ensure your assets are distributed according to your wishes.
  Protecting your children: A will is the only way to formally appoint guardians for your children, preventing potential conflict and uncertainty in the event of your death.

Episode quiz 

1. What is the standard headline rate for Inheritance Tax (IHT) in the UK?
a) 20%
b) 30%
c) 36%
d) 40%

2. If you leave at least 10% of your net estate to charity, what does the IHT rate on the remainder of your estate become?
a) 0%
b) 25%
c) 36%
d) It remains at 40%

3. What is the legal term for dying without a valid will?
a) Intestate
b) Probate
c) Executor
d) Testator

4. What is a 'pecuniary gift' in a will?
a) A percentage of the estate
b) A specific item, like a piece of art
c) A fixed sum of money
d) A gift to be paid from a specific bank account

5. What is the name of the IHT exemption that allows assets to be passed between married couples tax-free?
a) The marriage allowance
b) The spousal exemption
c) The civil partnership relief
d) The nil-rate band transfer

Answers

1. d) 40%
2. c) 36%
3. a) Intestate
4. c) A fixed sum of money
5. b) The spousal exemption

Resources

Links referred to in the podcast:

• Get 20% off of an Online Will with Farewill*
• Find out about 'Free Will's month
• What happens if you die without a Will? - Rule of Intestacy explained
• Check out our AI Guidance Tool - Damoney
• Sign Up To The MTTM Weekly Newsletter

If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use.