A UK registered charity received regular donations from a UK resident taxpayer during her lifetime, properly certified by gift aid declaration.
So far so good.
The donor has now died and left a substantial cash legacy to the same charity in her Will. It has been a bit of a struggle, but my reading of the documents suggests that the charity is entitled to treat the legacy as a payment net of basic rate tax and can recover said basic rate tax.
Part A, Chapter 6.1 of this guidance hints at this:
https://www.gov.uk/government/publications/charities-detailed-guidance-n...
Furthermore none of the conditions in section 416 ITA 2007 appear to be breached.
Are we all agreed?
Again, so far so good.
But what is the position of the estate of the deceased, whose (tax) affairs are confidential and opaque as far as the charity is concerned?
Would the estate have to demonstrate that it has paid sufficient tax to cover the charity's repayment claim, on pain of a clawback?
Do the executors have to assume that the charity has entered that claim?
Can it use Inheritance tax to frank the donation?
A link to where this is set out in black and white somewhere would be much appreciated, thanks.
With kind regards
Clint Westwood
Replies (6)
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Its not a gift aid payment
Its a legacy and I cannot see how you have come to your conclusion.
also confused
I too am confused. It sounds as though you have a specific legacy for the benefit of the charity.
That means that unless there is any counter indication in the will the charity should expect to receive the specified sum with any IHT payable being borne of the residue.
To the best of my knowledge, Gift aid is not in point on the legacy, only on any gifts up to death.
Agree with the above correspondents.
Cash legacies to a UK registered charity are free of IHT. There would be no IHT on the cash legacy anyway.
If the Estate did subsequently pay income of the Estate (i.e, income generated by the assets in the Estate from the date of death) to the charity then tax would be deducted but the charity would be then given a R185(Estate) form to claim the tax back.
However, as this seems to be a specific pecuniary legacy and not a payment out of the residue of the Estate, it is unlikely the charity will get any share of the income of the Estate anyway (depends on what the Will says though).
Charities do usually ask for a copy of the Will or, at least, for copies of the sections of the Will that spell out their share.
Gift Aid is not in point here. That's for the living.
Not a payment out of income
The logic is that Gift Aid applies to payments out of taxed income. The donor states that they have paid sufficient tax in the year of the donation to cover the charity's claim. If they haven't, their statement indemnifies the charity and they are personally liable to repay the shortfall of tax reclaimed minus tax paid HMRC.
By definition, a legacy is not a payment out of taxed income. It is a payment out of accumulated capital. Once you look at it that way, it makes perfect sense that gift aid tax cannot be reclaimed on the legacy.