Six tax efficient ways of giving to charity
There are many ways of giving to charity whether that is giving your time or making a donation. As part of Remember a Charity Week we look at six tax efficient ways of donating to charity.
1. Remember a charity in your Will
Many people decide to leave a cash legacy in their Will to a charity that they have supported during their lifetime. A gift to a charity in your Will is exempt from inheritance tax regardless of the amount given.
You can leave a specific cash amount to a particular charity in your Will or you can leave a cash gift to your Trustees and express the wish that they give the money to such charity or charities as they decide and in doing so that you would like them to have regard to any wishes of yours which may come to their attention. For more information on this please see our article "Dying Wish" on Wednesday.
Furthermore, if your estate is above the inheritance tax threshold then you can reduce your inheritance tax liability from a rate of 40% to 36% by leaving 10% of your estate to charity and we will be explaining more about this in our feature article on this on Friday.
2. Gift Aid
Charities are estimated to be losing hundreds of millions of pounds a year in unclaimed Gift Aid. In these financially difficult times, one way to ensure that the charity gets the most from your donation is to state that you want Gift Aid to apply.
Gift Aid is a Government scheme which enables charities to reclaim from the Revenue the basic rate income tax you have already paid on your donation. To make a Gift Aid donation, all you have to do is declare that you have paid enough tax to cover the amount the charity will reclaim.
For all basic rate (20%) taxpayers charities gain an extra 25p in every £1 donated if you state that Gift Aid is to apply. So if you donate £10 the charity receives £12.50.
If you are a higher or additional rate taxpayer then you can claim back via your tax return the difference between the higher or additional rate of tax (40%/50%) and the basic rate (20%) on the value of your donation. So you can reclaim 25p for every £1 donated if you are a higher rate taxpayer and 37.5p for every £1 donated if you are an additional rate taxpayer. For example, if you donate £100 then the value of your donation with Gift Aid is £125 and if you are a 40% taxpayer you can claim back £25 (£125 x 20%). This can either be retained by you or passed on to the charity.
3. Giving to charity through your pay or pension
If your employer or company/personal pension provider operates a Payroll Giving Scheme then you can use this to make donations direct to charity from your pay or pension. The donations are made from your salary before tax, which means that if you are a basic taxpayer and make a monthly donation of £20 you save £4 in tax (20% x £20). If you are a higher rate taxpayer this increases to £8 (40% of £20) and to £10 if you are an additional rate taxpayer (50% of £20).
By giving through the Payroll Giving Scheme the charity can receive all the tax relief directly without having to have the administrative task of claiming it back through Gift Aid.
4. Giving assets to charity:
If you give property or shares to a charity (or sell them to the charity at less than their market value) then you can claim income tax and capital gains tax relief. For further information on this please contact a member of our Private Client Team.
5. The Charities Aid Foundation (CAF)
You can set up a CAF charity account which enables you to save money for charitable giving. You can make regular deposits into the account from £10 a month or large infrequent payments. You will be in control of your account and can decide which causes or charities you will donate to, how much and when. You can make one-off donations to emergency appeals or regularly support charities you care about. Your donation will be tax efficient because CAF will automatically add 25% in Gift Aid to your donation if you are a UK taxpayer. CAF will charge a fee for managing the account, but because it is a charity they keep their fees to a minimum. For more information please visit CAF Online.
6. Donating unwanted shares:
If you have odd lots of small shares which are worthless to you because they will cost you more to sell them than they are worth you can donate them to ShareGift, a charity which receives unwanted shares and sells them in bundles and gives the proceeds to a range of UK charities. For information on how to donate your shares, please visit ShareGift.