STEP creates model clause for wills to boost charitable giving
The Society of Trust and Estate Practitioners (STEP) today
published a draft model clause for wills in response to draft
legislation proposing a reduced rate of Inheritance Tax (IHT) where
there is a charitable legacy of 10% or more left in a will. To
encourage the widespread use of this proposal, STEP has drafted a
model clause for wills for use by individuals wishing to leave a
legacy which will qualify under the proposed new provisions.
Wendy Walton TEP, Chairman of the STEP
Technical Committee said, “HMRC have recognised that the take up of
this measure will depend on the extent to which the reduced rate is
promoted by charities and by professional advisers. They have
encouraged the use of standard clauses and in publishing this draft
model clause STEP seeks to encourage charitable giving by making it
easy for people to take part in this initiative.”
STEP also welcomed changes made to the
proposals since the initial consultation in particular the removal
of restrictions on certain categories of asset which required
complex valuations such as shares of jointly owned property.
Previously only cash, quoted shares or real property could be
STEP’s proposed model clause allows people to
set aside assets from their estate for the purpose of charitable
giving. The model clause is currently in draft and will be reviewed
when the final wording of the legislation is known.
Set out below is an extract from our
submission to HMRC containing the draft clause and our
comments on it.
Please note, this clause is in
draft only. We are currently working with HMRC to finalise a clause
and will publicly release it when it is agreed.
We set out in the Appendix to our previous
submission a possible model clause that might be adopted by persons
wishing to leave a legacy qualifying for the new relief.
The draft clause requires amendment so as to be
consistent with the definitions and structure provided in Schedule
1A. We had considered amending the clause also to encompass the
possibility of the legacy being varied under a formula should an
election be made for another component to be treated as a single
component with the free estate by an election under paragraph
On reflection we have not included such an
amendment. This is for two reasons.
Firstly, complexity. Further, in many cases such a
provision will not be needed. Such a clause could be drafted on a
bespoke basis if it were needed and thought to be possible.
Secondly, questions of an unauthorised delegation of testamentary
authority might arise because the deceased may be seen to have
delegated to others the ability to vary the value of the legacies
to charity by making or omitting to make an election under
We have however included the more limited option of leaving a
legacy of 10% or more of an aggregate of the general and other
components irrespective of whether an election under paragraph 7 is
made. It would then be for the relevant persons to decide whether
or not to make an election under paragraph 7 but in
doing so they would not alter the size of the legacy. This
does not give rise to the concerns mentioned in the previous
We set out below a possible model clause that
might be adopted by persons wishing to leave a legacy qualifying
for the new relief.
It would be most helpful to practitioners and
taxpayers generally if HMRC would confirm that such a clause (with
any appropriate amendments) would be accepted as complying with the
requirements of Schedule 1A.
Any clause of a general nature like this would
need to be qualified to deal with the concerns set out below.
The first such concern is that a legacy
defined by reference to the relief will fail if the estate turns
out to be below the threshold for a taxable estate: if there were
no TP within paragraph 1(2). Another concern is that a legacy
drafted so as to qualify for relief might leave to charity too much
as a proportion of the estate passing on the death of the testator.
This might arise, for example, if the estate on the death was worth
less than anticipated. In such a case there might be a risk that
the dependants of the deceased would be prejudiced.
The clause below is designed to provide for a
legacy which would qualify for relief but which also contains
optional provisos designed to address the concerns mentioned
Proviso (ii) addresses the second concern
referred to above that the legacy to charity might comprise too
large a proportion of the estate on death. The consequence of
including the proviso may be that 10 per cent threshold is not met
and that relief would not be available subject to a possible
election under paragraph 7 if there was another component which was
a qualifying component. The proviso includes a number of options.
In the event that the proviso is included the testator or testatrix
may wish to alter the amount of the legacy or indeed to omit it
entirely should the proviso apply. The appropriate option could be
We have in addition included administrative
provisions which while not essential to the clause being effective
in attracting relief under Schedule 1A would nonetheless be useful
I give [name
of charity] such a sum as shall constitute a donated amount
equal to 10 (or insert larger figure) per cent
(%) of the baseline amount in relation to the [general component]
[aggregate of the general, [survivorship] and [settled property]
components] of my estate.
[The legacy given
by this clause shall in no event:
1.2.1 be less than
£[•] whether or not the lower rate of tax shall be applicable;
1.2.2 exceed £[•]
(the upper limit) even if in consequence of this restriction in the
value of this legacy the lower rate of tax 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 £[•]] [lapse].]
My executors in
making payment of the legacy given by this clause:
1.3.1 shall be
entitled to accept in full discharge the receipt of the secretary,
treasurer or other officer of the charity concerned;
1.3.2 may appropriate
assets not otherwise specifically bequeathed to satisfy (or partly
satisfy) this legacy without the consent of any beneficiary under
my will or any codicil to my will.
I hereby confer on
my executors the power to make or withdraw any of the following
1.4.1 an election
under paragraph 7 whether or not the general component is the
qualifying component; and
1.4.2 an election
under paragraph 8.
For the purposes
of this clause "baseline amount", "donated amount”, "general
component”, "lower rate of tax”, "qualifying component”, "settled
property component" and "survivorship component” shall have the
meanings they respectively bear in Schedule 1A Inheritance Tax Act
1984 and references to paragraph numbers concerning the making or
withdrawing of an election are to the paragraphs bearing the same
number in Schedule 1A of that Act.
The Society of
Trust and Estate Practitioners (STEP) is the worldwide
professional body for practitioners in the fields of trusts and
estates, executorship and related issues. STEP aims to promote the
highest professional standards through education and training
leading to widely recognised and respected professional
qualifications. STEP also works to demonstrate the value of good
stewardship and planning across future generations to governments,
professionals, financial institutions and the public. STEP
internationally has over 17,000 members, with over 6,000 members in
the UK. Over 4,000 students worldwide are currently studying for
STEP qualifications and in the UK STEP supports an extensive
regional network providing training and professional