Gifts to charity can take many forms. Perhaps you are already making regular donations to one or more well known charities, coupled with one-off donations in response to natural disasters or televised appeals. In this special supplement to our guide we will focus on some of the ways you can increase the value of your gift to your chosen charities through the various forms of tax relief available.
A final gift to charitable causes
Many people opt to include charitable bequests in their Will. There rate of inheritance tax for example if at 36% when gifts to charity represent 10% or more of the estate.
|Bequest below 10% (D)||Bequest above 10% (D)|
|Net value of estate before bequest||1,000,000||1,000,000|
|Deduct: Charitable bequest||0||100,000|
|Net estate liable to IHT||1,000,000||900,000|
|Deduct: IHT exemption||325,000||325,000|
|Liable to IHT||675,000||575,000|
|Deduct: IHT @ 40%/36%||270,000||207,000|
|Net estate for distribution||D730,000||D693,000|
Thus in the above example, charitable causes benefit by D100,000 while the IHT reduces by D63,000 and the net amount available for distribution is only reduced by D37,000.
If you leave 10% or more of your estate to charity your rate of IHT reduces from 40% to 36%. Is now the right time to prepare or update your Will? Please contact us to discuss the planning options available to you.
Donations made under Gift Aid are made net of basic rate tax. This means that for every D1 you donate, the charity can recover 25p from HMRC. Furthermore, if you are paying tax at the 40% rate, you can claim further tax relief of 25p. Consequently, at a net cost to you of only 75p, the charity receives D1.25 – or, for a net cost to you of D100, your donation is worth nearly D167 to charity. If you are a 45% taxpayer, the additional tax reclaimed is 31.25p making a donation costing D100, net worth D182 to the charity.
A payment made in the current tax year can, subject to certain deadlines, be treated for tax purposes as if it had been made in 2016, provided you have not yet submitted your tax return. This may not be important to many people, but if you paid higher or additional rate tax in 2016 and expect to be in a lower rate band this year, a claim will allow you to obtain relief at last year’s, higher rate. The application must be made on an original tax return, not on an amended return.
Gifts of assets
Not all donations need to be money. You can make a gift of assets, such as quoted securities or land and buildings, and the gift can score for a double tax relief. Any gain which would accrue on the gift is exempt from capital gains tax, and you are also entitled to income tax relief at up to 40% on the value of your donation.
You may have a shareholding that has lost so much value it is not worth keeping and yet be worth too little to pay for the broker’s fees and stamp duty. Such shares may be donated to Share Gift. The timing can help crystallise a capital loss.
You can make regular donations to charity through your payroll, if your employer agrees to operate the scheme.
The scheme operates by deducting your donation from your gross pay equal to the net cost to you of the monthly net donation you want to make – so as an example, if you want to donate D20 per month to a charity, your employer would deduct this and pay it to the scheme managers. This reduces the employee’s tax for that month by D4. The employee has made a donation of D20 at a cost of D16. For higher rate and additional rate taxpayers, the saving is greater.