Maximising non-exempt beneficiaries’ shares: A guide for estate planning with Save The Rhino International

When planning your estate, understanding Inheritance Tax (IHT) implications is crucial, especially when you leave gifts to both exempt and non-exempt beneficiaries. Certain beneficiaries, like your spouse or a charity such as Save the Rhino, are exempt from IHT, meaning gifts left to them are free of tax.

Exempt beneficiaries: The case of Save The Rhino

Charities, including Save the Rhino, are exempt from IHT. This means any gifts or assets you leave to Save the Rhino will not be subject to IHT, regardless of the amount. Furthermore, if you leave at least 10% of your estate to a charity, like Save the Rhino, the IHT rate on the rest of your estate can be reduced from 40% to 36%.

For example, if you leave £400,000 to Save the Rhino, it will be exempt from IHT. This not only supports a worthy cause but also helps reduce the IHT burden on the rest of your estate.

Non-exempt beneficiaries: How to maximise their share

Non-exempt beneficiaries, such as your family or friends, will be subject to IHT on their share of the estate. The tax is generally calculated after the shares are divided between exempt and non-exempt beneficiaries. For example, if you leave £400,000 to Save The Rhino and £600,000 to your children, the £600,000 would be taxed at 40%, leaving them with £360,000.

Grossing up: Ensuring full share for non-exempt beneficiaries

To ensure that non-exempt beneficiaries receive their full intended share after tax, you can use a strategy called grossing up. This involves increasing their share to account for the IHT deduction. If you want your non-exempt beneficiaries to receive £600,000 after tax, you would need to gross up their share to £1,000,000.

For example, if the IHT rate is 40%, the non-exempt share would need to be £1,000,000 so that after the 40% IHT is deducted, they receive £600,000. While this benefits the non-exempt beneficiaries, it increases the overall IHT burden for the estate.

Conclusion

Leaving part of your estate to exempt beneficiaries like Save the Rhino and part to non-exempt beneficiaries requires careful planning. By using strategies like grossing up, you can ensure your non-exempt beneficiaries receive their full intended share, while also supporting charitable causes free from IHT.

Please note that this article applies to England and Wales only.

For more information on inheritance tax and estate planning please contact Alex Mackenzie Smith on +44 (0)20 8394 6206 or alex.mackenzie-smith@russell-cooke.co.uk