Sample wording to ensure 10 % test is met

To avoid the need to continually revise charitable legacies in Wills, a clause may be worded so that a specific legacy to charity will always meet the 10% test. An example is given below and where such wording is used, you can accept that a specific legacy to charity will always meet the 10% test. You should look carefully at clauses where the reduced rate is used but the wording of the clause is different in any way from that shown below, to ensure that the correct effect is given to the wording used.

Example

I give to Merchant Taylors' School Charitable Fund (Registered Charity No. 1063740) such a sum as shall constitute a donated amount equal to 10 (or larger figure) per cent (%) of the baseline amount in relation to the [general component] [aggregate of the general, [survivorship], [settled property] components and [reservation of benefit property]] of my estate.

The legacy given by this clause shall in no event:

(i) be less than £nn whether or not the lower rate of tax shall be applicable; and

(ii) exceed £nn (the upper limit) even if in consequence of this restriction in the value of the legacy the lower rate shall not apply. [If this proviso shall apply and in consequence the lower rate of tax shall not be payable, the amount of this legacy shall [be equal to the amount of the upper limit] [be reduced to £nn] [lapse]].

The clause may be followed by other administrative provisions, but the essential wording to qualify for the reduced rate is that shown above. It follows from the wording of this clause that the amount of the legacy may not be known until the value of the estate is settled and the amount of charity exemption will change as the value of the estate changes.

The first paragraph of the clause ensures that the charitable legacy will meet the requirements for the reduced rate. The legacy is set by the reference to the components of the estate listed; but this only fixes the size of the legacy to be paid under the Will - it does not override the requirement for those liable for the tax at the different components to elect for the components to be merged before other components can benefit from the reduced rate.

Proviso (i) ensures that even if the estate is not liable to Inheritance Tax, the legacy is still payable to the charity. Proviso (ii) ensures that charitable legacy does not exceed a fixed amount, even though that may mean the estate does not qualify for the reduced rate.

The HMRC website provides an online calculator to help you establish whether a charitable legacy will meet the qualifying criteria. It can be found here. 

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