Ringing and Money
10. Enjoying the Thought
One of a series of articles on Ringing and Money by Steve Coleman
My wife and I aren’t rich exactly, but we’ve got a house and we’ve saved a bit – and ringing doesn’t cost much – and somehow it looks as though there’ll be Inheritance Tax to pay when we’re both gone. So we’d like to leave £30,000 or so to belfry restoration – or perhaps give it while we’re still alive – so what’s the best way with all that?
J. & M. S.
How splendid! And what better time to think about it than on a warm Summer’s day in the garden. But that said, what you do with your money is, of course, entirely up to you. You can spend it now, save it for later, give some of it now, give some of it later, leave it to your relations or leave it to charity, and that’s entirely your choice.
So I’m not going to try to persuade you to give it to charity, let alone to any particular charity. But if giving or leaving money to belfry restoration is what you want to do, here are some of the hows, ifs and buts of it all.
But first, since Inheritance Tax appears to be a factor in your decision, are you sure you’ll be liable to it? Things have changed recently, and like all tax, it’s far from straightforward. Essentially, though, for a single person there’s no Inheritance Tax payable on the first £325,000 of their estate.
With a married couple – or two people in a civil partnership – no Inheritance Tax at all is payable on anything left to the surviving spouse or partner by the first one to die. What’s more, if the first one to die leaves all their estate to the surviving one, then the surviving one inherits their nil rate band along with it. So when the second one dies, their estate will benefit from two nil rate bands.
What’s more, those two nil rate bands will both be increased as the years go by. So although they amount to £650,000 this year, in later years they will almost certainly be more and perhaps a great deal more.
Ifs and Buts
Needless to say, there are all sorts of complications. So if the first spouse or partner leaves some money to someone other than the second or a charity – but less than the nil rate band – then a percentage or of their nil rate band won’t be passed on. But on the plus side, a widow or widower can use some or all of the nil rate band of their husband or wife who died many years ago.
It would take pages to explain it all, but the message is this. Don’t just assume that Inheritance Tax will be payable on your estate. It may not be.
For that matter, don’t just assume that Inheritance Tax won’t be payable on your estate – perhaps because you’ve already given a lot of money and assets to your children and/or grandchildren. Do-it-yourself attempts to avoid Inheritance Tax may not only be unsuccessful, they may even make you liable for more Income Tax. Be warned.
But let’s suppose, you’re sure you’re going to be liable. In that case, for every £1,000 you leave above the threshold, your estate will have to pay £400 in Inheritance Tax.
Yet if you leave that £1,000 to a registered charity in the normal way, no Inheritance Tax at all will be payable on it. So that £30,000 you are thinking of leaving to belfry restoration, will be £30,000 in the hands of the charity but would be only £18,000 in the hands of an alternative, non-charitable, non-spouse beneficiary.
And that makes charitable bequests in your Will a good deal. For every, effective £600 you give, the Chancellor will give an extra £400.
If not Liable to Inheritance Tax
Of course, if your estate turns out not to be liable for Inheritance Tax, your legacy of £30,000 will still be £30,000 in the hands of the charity. It just won’t be quite so tax efficient.
And for many people that’s an important point because they have deeply emotional – if largely irrational – views about tax. Such people applauded the Chancellor for supporting the credit boom that made their houses several times more valuable, but then bitterly resented the thought of paying Inheritance Tax on the increase. They were convinced that free care for the elderly should be an automatic right, but didn’t expect anyone to be charged extra taxes to pay for it.
And if that’s the way you feel and your estate is not going to be liable Inheritance Tax – but you still want the Chancellor to put his smallest shovel into your cash pile – you might like to consider giving before you go.
And the simple comparison is this.
If you pay Income Tax and you give £100 to a charity before you die, the charity will actually receive – including the Gift Aid payment it gets from the Chancellor – £128. If you pay Income Tax at the higher rate, the Chancellor will actually give you a £25 tax rebate as well – see Ringing and Money 2.
If you’re retired but not paying at the higher rate, the Chancellor may give you a tax rebate up to £12.50 – see Ringing and Money 8. So if your estate isn’t going to be liable for Inheritance Tax and you pay any Income Tax at all, £100 given to a charity while you’re alive will be worth at least £128 bequeathed to the same charity in your Will. And for many people that’s an important point to think about.
And as ever, these are this year’s figures – 2009/10 – and they may well be a little different in future.
But – and this is a very big but – don’t let tax govern your financial decisions unless you’re very bitter about it indeed. Don’t become a financial King Lear. Don’t leave yourself or your spouse with insufficient funds to pay for your latter years because you’re determined to avoid tax.
At least, that’s my personal advice. I’ve seen many people lose all their savings through making badly advised, tax-based investment decisions, and I’ve known many unhappy elderly people who have passed their savings on to their children and grandchildren, only to find those children and grandchildren being – in their eyes – insufficiently grateful. Be very careful.
And my equally strong advice is that everyone should make a Will. Everyone should arrange to die financially tidily. Everyone should ensure that their loved ones are as properly provided for as possible and not saddled with horrendous financial complexities in addition to their grief. And sad thought though it is, when you make your Will, you also need to consider the what ifs.
The What Ifs
For example, your spouse or partner may die before you, and your children may die before you too. You and all your children may die in the same car crash – or shortly afterwards.
While you’re dancing the conga during your 75th wedding anniversary celebrations – with all your children, grandchildren and great grandchildren dancing along with you – the hotel may be destroyed by a massive gas explosion. So even if you want to leave every penny to relations, do include a provision in case they all die before you or shortly after you. Otherwise it could all go to the State.
Typically, you can include a clause which says that if none of your potential beneficiaries survive you by more than 28 days, your estate will go to a specified charity – or if that charity no longer exists, to such similar charity as your executors decide.
And if you definitely want to leave money to belfry restoration – either as a specific amount or as a last ditch just-in-case – what then?
Well, it certainly doesn’t need to be as much as £30,000. Association Belfry Repair Funds (BRFs) and tower rehang projects will be extremely grateful for a few hundred. For many people, £1,000 bequeathed will be a tiny fraction of their estate, but it will be a major sum to the recipient.
So whilst I’m not trying to persuade you, it always seems to me that we’ve all received a colossal amount of training, encouragement and fun from ringing – virtually for free – that in any other activity would have cost us many thousands. We’ve also received a level of friendship and social support – often extending way beyond the ringing chamber – that non-ringers could only dream of. So in addition to all the friendship and support we each give back in our turn, leaving a little after we’ve gone seems a fair idea.
But the amount you intend to leave may well affect who you want to leave it to.
So most people go for one of four options.
- If they have a strong attachment to a particular tower, they leave it to the PCC of that tower.
- If they have a strong attachment to a particular Branch, they leave it to that Branch’s BRF – if they have one – or to the Branch itself if the Association as a whole is a charity.
- If they have a strong attachment to a particular Association, they leave it to that Association’s BRF.
- If they want to leave money for the whole of the UK, they leave it to the Central Council’s BRF.
And, of course, you could leave it for ringing without it being for belfry restoration at all. You could leave it to subsidise training courses, or to support a ringing centre, or to subsidise a Branch or tower outing. You could even leave it for your local band to have a slap up dinner.
So think very carefully what you want your money to do, and then ensure that your Will says that very clearly and specifically. That way, the charity that receives it will have to spend it as you want them to. Make sure, too, that you are giving it to a charity, or – as in the case of the slap up dinner – that you clearly realise that you aren’t.
That’s what your solicitor is for. Tell him or her exactly what you want and then read very carefully what he or she has written. Definitely don’t trust him or her to get it right first time.
I’ve no doubt there are many first rate solicitors around, but my personal experience is that I’ve never yet seen a Will that was correctly drafted at the first attempt.
And of course, if you change your mind later, you can change your Will too. Indeed, you can change it often, and for many people that’s a real pleasure in their later years.
And even if you never change it, you can still enjoy thinking about it. You can experience the warm glow of imagining how much pleasure your bequest will create and how much good it will do too. You may not be there to witness it, but you can still get a good deal of fun from simply enjoying the thought.