Tax efficient charitable giving

Tax efficient charitable giving

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This past year has provided many with an opportunity to reflect, and you may now be considering a review of your charitable giving. Which causes do you wish to support? Which financial vehicle will you choose to make your donation? Whichever charity you choose to support there are some important considerations when gifting cash or other assets. It is possible to arrange your donations as tax efficient charitable giving.

The state of the UK voluntary sector

This past year has seen a number of large fundraising events which provided the UK population with inspiring fundraising campaigns to rally around.

The late Captain Sir Tom Moore set out to walk up and down his garden 100 times before his 100th birthday. After capturing the hearts of the nation he not only received a guard of honour for his 100th lap, but raised a staggering £32,796,355 for NHS charities to continue their essential work.

Taking inspiration from Captain Tom, Margaret Payne set out to climb the equivalent of a 2,398ft mountain in her own home to help raise money for the NHS in the fight against coronavirus. Her fantastic efforts raised £360,060 or £436,536.97 if you add in Gift Aid.

These two fundraising campaigns, whilst very welcome have not compensated for the shortfall that many charities have reported over the past year. Individual fundraising and large sporting events have not been able to take place, leaving a £10bn funding shortfall. Coupled with research that shows that demand for services is expected to increase for 56% of organisations in the coming months it is clear that many charities are facing a funding crisis.

How do I organise tax efficient charitable giving?

There are several ways to tax efficiently donate to charities which are worth considering:

  1. Give as you earn – otherwise known as Payroll giving. This enables those earning a salary to give directly to charity from your pay before tax is deducted.
  2. Gifting shares either directly to a charity of your choice or via a Charities Aid Foundation (CAF) Charity Account or CAF Charitable trust. This enables you to get income tax relief on the value of the shares as well as an exemption from capital gains tax.
  3. Give land, property or other assets to a charity. This would be exempt from capital gains tax and inheritance tax.
  4. If you regularly donate large sums of money then a grant making programme may be an option.
  5. Leave a charitable legacy – which provides a flexible and tax-effective way to leave a lasting legacy for a cause you care about.
  6. Gift aid – which allows charities to reclaim the basic rate of tax paid by UK tax payers on any donation given.
  7. Many charities run membership schemes where members have access to local events or access to venues in exchange for a regular membership payment.

Gift Aid explained

Based on the achievements of Colonel Tom walking up and down his garden and Margaret Payne climbing her stairs I thought I would explain the importance of Gift Aid when you make a donation.  The current donations for them so far are:

  • Margaret Payne £360k with nearly £77k of Gift Aid making the total raised £437k
  • Tom Moore £32m donated with gift aid raising the amount raised to around £39m

Gift Aid is a scheme which allows charities and Community Amateur Sports Clubs (CASCs) to claim from HMRC the basic rate of tax their donors have paid. Gift Aid increases the value of donations by 25%, so it means even more money goes to the causes you care about and it won’t cost you anything extra!

In order to use Gift Aid you must make sure that you have paid enough income tax to HMRC in the tax year in which you make your donation – at least equal to the amount that the charity will reclaim. The charity will ask you to sign a Gift Aid declaration confirming that you have paid sufficient tax.

HM Revenue & Customs’ provisional data for the year to March 2019, shows that the amount of Gift Aid claimed by charities rose to a record £1.35bn, up £90m from the year before, from eligible donations worth £5.41bn.

This is why Gift Aid is so, important as £1.35bn spent well can do a lot of good things!

Special rules for claiming Gift Aid

Gift Aid can be claimed on many more things than you might realise:

  • funds from sponsored challenges for example overseas treks or marathons
  • charity membership fees
  • church collections
  • selling goods on behalf of individuals, for example through a charity shop
  • charity events or to view charity property
  • charity auctions
  • volunteer expenses donated back to your charity or Community amateur sports clubs
  • funds raised through charities involved in running schools

To review your charitable giving from a financial planning perspective to maximise your tax efficient charitable giving please get in touch with your Financial Adviser. For advice on legacies and other charitable gift mechanisms we can refer you to our trusted professional partners.

The tax treatment depends on your individual circumstances and may be subject to change in future.
All rates of tax and tax reliefs are based upon our current understanding of them but may be subject to change in the future. We recommend you seek competent professional advice before taking any action. The Financial Conduct Authority does not regulate tax advice.

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