Charity giving the tax efficient way

Posted on May 28, 2016 by Guy Atkinson

Let’s face it, our charities need all the support we can give. Whether you donate unwanted clothing to your local charity shop, occasionally pop some coins into a street collection tin or support individual charity efforts online, we all do what we can.

charity word cloud

The voluntary sector is now an essential part of the fabric of our society. There are more than 160,000 organisations large and small, all over the country, that provide a vast array of services with a diverse range of aims and activities. From animal protection to building conservation, childhood literacy to victim support, every group depends on voluntary funding to be able to carry out their valuable work.

If you wish to make a donation to charity, there are many ways to go about it. If you’re a tax payer, you can give even more, simply by making sure that your charity contribution tax efficient. To help with long-term financial planning, including charitable giving, you may wish to consult a wealth planner or legal expert.

Gift Aid

Introduced in the Finance Act 1990, Gift Aid is an income tax relief designed to benefit charities, with the ability to claim back 25p for every £1 donated. This means that your £1 donation will be worth £1.25 to the charity. If you are self-employed or you wish to make a one-off donation, this is the most tax-efficient way to do it. In addition, if you are a higher rate tax payer and fill in a Self-Assessment tax return, you can also claim back the difference between higher rate and basic rate tax on the value of your donations.

In order to qualify for Gift Aid, the donor must be a UK tax payer who has paid at least as much tax as the amount the charity will reclaim in the relevant tax year. More details on the scheme can be found here.

Before you can be considered for Gift Aid, you need to make a declaration to the charity that you would like your donation to be treated as Gift Aid. Normally, the charity in question will give you a form to sign to that effect.

Give As You Earn

If you are an employee and you wish to support a charity with regular donations, Payroll Giving or Give As You Earn is the most tax efficient way to do this. Put simply, it gives you a convenient means to make a regular, tax-free donation from your gross salary directly to the charity of your choice. As a basic rate taxpayer, every £10 donation you pledge will in effect only cost you £7.80.

There are various other ways that money can be donated to charity via regular giving schemes, and some charities have special accounts or initiatives set up to take advantage of this. Check with your chosen charity to make sure you support them with your most efficient contribution to maximise the benefit to them.

It is possible to make charitable donations by both Gift Aid and Give As You Earn, however you are only able to claim tax relief once on each type of gift.

Company schemes

Many companies have payroll giving schemes in place that make tax-efficient charity giving before tax has been deducted even easier. Check with your employer, and perhaps suggest setting up a scheme if none is in place. Useful information on charity giving as a company – including how to set up payroll giving, matched giving or a CAF Charitable Trust – can be found here.

Donation of property, stocks and shares

If you donate land or property to charity, full income tax relief applies. This means that if you are a higher rate tax payer giving a property worth £100,000, the amount of £40,000 tax relief can be claimed per a free tax calc online.

You can also give other assets and claim tax relief, including stocks and shares. If you own shares, you can either sell them yourself, give the proceeds to your chosen charity via Gift Aid – or you can donate your shares to the charity direct.

Gifts of land, assets or shares to UK charities are exempt from capital gains tax. It is also worth noting that gifts made to UK charities are not liable to inheritance tax.

Charitable Trusts and Legacies

A charitable trust is often a better way to give to charity than an absolute gift, and there are many tax advantages to setting up a trust. A trust can be established during your lifetime or through your Will.

Finally, you can include a charity donation in your Will. If you leave at least 10% of your estate to charity, the rest of your estate will pay a reduced rate (36% instead of the regular 40%) of inheritance tax on anything over £325,000.

Charitable giving should be part of your overall financial planning strategy. Contact an experienced investment adviser, wealth planner or tax consultant to discuss your particular situation.

Article provided by Mike James, an independent content writer working together with Chichester-based law firm George Ide, who were consulted over the information in this post.

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