 IHT tax break welcome but VAT exemption more pressing for charities
09 June 2011: The government’s proposed 10% inheritance tax (IHT) relief for bequests, confirmed in the consultation document published today, is welcome news for not-for-profit organisations, but the long overdue VAT cost-sharing exemption would be far more helpful to charities right now, according to PKF Accountants & business advisers.
The reduction in the rate of IHT to 36% is intended to apply when individuals leave more than 10% of their net estate (after the nil rate band and other reliefs) to charity and was one of a range of small measures announced in the 2011 Budget to support charitable giving.
Sarah Campbell, tax director at PKF and a charity sector specialist, explains: "In the long-term, this will probably increase donations to charities, but charities will need to make considerable efforts to educate their regular donors, and the wider population, to help them make the most of this incentive. The problem is that donors tend to leave specific amounts in their Wills, rather than giving a percentage or a share of their estate. So donors’ families may miss out on the tax break unless donors are advised correctly and leave at least 10% of their net estate to charity: careful drafting of the donor’s Will is going to be essential."
"Of course, if you do give a percentage of your estate to charity in your Will and the value of your assets, perhaps your home, increases significantly before your die, the eventual gift could be much larger in cash terms that you anticipated."
Sarah continues: "While any tax break on giving is undoubtedly good news, today’s announcement is unlikely to help charities facing financial difficulties right now."
Richard Wild, VAT director at PKF, says: "Charities facing falling income are looking to cut costs by setting up a cost-sharing arrangement with other charities for essential services. However, if they do this they will currently incur irrecoverable VAT charges under UK law - even though the core EU legislation says they shouldn’t."
"Lobbying and consultation on this point has been going on for years, but it is now an urgent issue. If the government complies with EU law and implements a VAT cost-sharing exemption, it will have an immediate impact on the bottom line for many charities and could save some of them from closing."
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For further information, please contact: Andy Konieczko, 020 7065 0537, andrew.konieczko@uk.pkf.com
Notes to Editors:
1. PKF (UK) LLP is a leading firm of accountants and business advisers with more than 1,500 partners and staff operating in 23 offices in the UK mainland firm, incorporating a wholly-owned financial planning company and associated offshore practices. The firm specialises in advising growing and entrepreneurial/owner-managed businesses, AIM and fully listed companies, and also has extensive experience in the public and not-for-profit sectors. Principal services include assurance and advisory; taxation; consultancy; corporate recovery and insolvency; corporate finance and forensic. The firm has particular expertise in advising sectors such as hotels and leisure; mining and resource; public sector; real estate and construction; professional practices; not-for-profit; and medical. The firm’s web site is www.pkf.co.uk
2. PKF (UK) LLP also offers financial services through its FSA authorised company, PKF Financial Planning Limited. PKF (Isle of Man) LLC is a limited liability company registered in the Isle of Man. PKF (Guernsey) Limited is incorporated in Guernsey.
3. PKF (UK) LLP is a member firm of the PKF International Limited (PKFI) network of legally independent member firms. The PKFI member firms have around 2,200 partners and more than 21,000 staff in around 125 countries.
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