Changes to inheritance tax relief in the Budget will reduce incentives for people to leave legacies, and for professional advisors to talk about them, says Rob Cope of Remember a Charity.
The first wholly Conservative budget of many years has delivered, as expected, tax breaks for the wealthy. The lure of no inheritance tax for the majority of householders who wish to pass on their sub £1 million homes to loved ones, without the fear of incurring them a sizeable tax bill was undoubtedly a powerful promise for voters in this year’s election. But, it could have big implications for charities and legacy fundraisers in particular.
When Britons leave money to charity in their will they can currently gain inheritance tax relief of up to 10 per cent on donations over and above the IHT threshold (currently £325,000). This can be a powerful motivator for many charity supporters. Moreover, it is a reason for professional advisers and estate planners to prompt legacy giving with their clients.
The increase in inheritance tax threshold to £1m for couples, phased in from 2017, could have a negative impact on the legacy market. Fewer people will be now eligible for the IHT incentives for charitable giving, introduced by the Chancellor in 2012. These have made legacy giving increasingly popular with the public and also with solicitors and will writers when offering clients ways to reduce their tax bill while also supporting their favourite charities.
One of the biggest challenges will be that professional advisers will not find it as relevant to discuss legacies with so many clients and their role has been instrumental in increasing the numbers of people including a charity in their will. Our work with the Behavioural Insights Team in 2013 successfully showed that we can potentially treble the number of gifts in wills if advisors mention charity to their clients.
In a market where legacies generate more than £2bn a year from just 7.3 per cent of the population, even a small percentage change in behaviour could make an enormous impact.
Of course, reducing or avoiding IHT is by no means the biggest motivator for legacy giving. But the tax reduction gives advisors a reason to mention charity to their clients – an ice-breaker for a topic that many find difficult to raise in conversation otherwise.
If legacy giving incentives are available to an even smaller, richer section of the public (even before the threshold is to be raised, less than 10 per cent of estates incur IHT), legacy giving risks being seen as an issue to be raised only with the very wealthy. This is in contrast with the Chancellor’s stated commitment to making the giving of a legacy a social norm.
Leaving a legacy remains one of the most inspirational ways for people to give; to leave their mark on the world and the good causes they care about. The potential marketplace is significant. To achieve this potential, what is needed is more noise about legacies and the development of new incentives that encourage this form of giving across all areas of wealth. We need to create more reasons for advisors to mention charity to their clients.
Over the past five years, Remember A Charity has succeeded in putting legacy giving at the heart of the government’s policy on charitable giving. We have also changed behaviour among professional advisors, growing the percentage of those who mention charity from 53 per cent to 65 per cent in just four years.
But now is the time for this government to help the sector move even closer to making gifts in wills the social norm and review additional incentive schemes. As for charities, it has never been more important that we come together to promote the impact of legacy gifts.
Rob Cope is director of Remember A Charity
