Personal
Tax
Charitable
Giving
If
you are thinking of making a gift to charity, this factsheet
summarises how to make tax-effective gifts. You can get tax
relief on gifts to UK charities if you give:
- under
Gift Aid
- through
a Payroll Giving scheme, run by your employer, or
- by
making a gift of shares or land.
Gift
Aid
If
you pay tax, Gift Aid is a scheme by which you can give a
sum of money to charity and the charity can reclaim from basic
rate tax on your gift from the Revenue. That increases the
value of the gift you make to the charity. For example, if
you give £10 using Gift Aid in the current tax year
that gift is worth £12.82 to the charity.
You can give any amount, large or small, regular or one-off.
If you do not pay tax, you should not use Gift Aid.
How does a gift qualify for Gift Aid?
|
There
are three main conditions. You must:
- make
a declaration to the charity that you want your gift
to be treated as a Gift Aid donation
- pay
at least as much tax as the charities will reclaim
on your gifts in the tax year in which you make them
(tax credits on dividend income will count towards
the tax paid)
- not
receive excessive benefits in return for your gift.
|
Making
a declaration
The declaration is the charity’s authority to reclaim
tax from the Revenue on your gift.
The declaration can be in writing or orally but, usually,
the charity will provide a written declaration form.
You do not have to make a declaration with every gift. You
can specify in one declaration as many gifts for whatever
period you wish. For example, it can cover gifts you might
already have made to a particular charity since 6 April 2000
(when the current scheme started) or it can cover the gifts
you make in the future.
Membership subscriptions through Gift Aid
You can pay membership subscriptions to a charity through
Gift Aid, provided any membership benefits you receive do
not exceed certain limits. For example, if a subscription
between £100 to £1,000 is made, the maximum value
of the benefits you can receive in return for your donation
is £25.
However, you can disregard free or reduced entry to view heritage
property or wildlife, the preservation of which is the charity’s
main aim.
Fund-raising events
If you have simply collected money from other people, such
as on a flag day, you have not given the money yourself, and
the other people have not made a declaration to the charity
that they are taxpayers, so the payment is not made under
Gift Aid. However, if you have been sponsored for an event,
and each sponsor has signed a Gift Aid declaration, then the
charity can recover the tax on the amounts covered by declarations.
Charities may produce sponsorship forms for this.
Higher rate taxpayers
If you are a higher rate taxpayer, you can claim tax relief
on the difference between the basic rate and higher rate of
tax (through your tax return). Relief is given either for
the tax year of payment or in some cases it is now possible
to elect to receive the benefit of the higher rate tax relief
one year earlier than previously.
You should therefore keep a record of payments made under
Gift Aid for each tax year.
Donation of tax repayments
For tax returns from 2003/04 onwards, individuals can donate
all or part of a tax repayment due to them to charity by making
a direction on the self assessment return form. It is also
possible to direct that the gift should be a qualifying donation
under the Gift Aid provisions.
Payroll
Giving
A
Payroll Giving scheme allows you to give regularly to charity
from your pay and get tax relief on your gifts. The scheme
requires your employer to set up and run a scheme. You authorise
your employer to deduct your gift from your pay. Every month
your employer pays it over to a Payroll Giving agency approved
by the Inland Revenue. The agency then distributes the money
to the charity or charities of your choice.
Because your employer deducts your gift from your pay or pension
before PAYE is worked out, you pay tax only on the balance.
This means that you get your tax relief immediately at your
highest rate of tax. (The amount you pay in national insurance
contributions is not affected.)
In an effort to stimulate interest in payroll giving, the
government has announced that it plans to pay grants to smaller
businesses that establish schemes for their employees. The
amount will be up to £500 depending of the size of the
business. In addition the government will match each employee's
donation pound for pound up to a maximum of £10 per
month for six months, from when the employee signs up.
Gifts
of Shares or Land
Capital
gains tax (CGT)
You are not liable to CGT when you make a gift of assets,
such as land or shares, to charity, even if the asset is worth
more when you donate it than when you acquired it.
Income tax
You may also get income tax relief for these gifts to charity
if they are ‘qualifying investments’. There are
two main types of qualifying investments:
- quoted
shares and securities
- land
and buildings.
Example
Alma owns quoted shares with a market value of £10,000
and an original cost to her of £3,000. Alma is a higher
rate taxpayer.
Alma gives the shares to the charity. The charity will then
sell the shares for £10,000 and keep the full sale proceeds.
Alma will not have a capital gain arising under CGT. She will
be entitled to 40% income tax relief on the value of her gift
ie £4,000.
Although this sounds a very attractive relief, a comparison
should be made of the alternative route of gifting to a charity
by selling the investment and giving the net proceeds to charity
under Gift Aid.
So, if Alma sold the shares, she would make a capital gain
of £7,000 before indexation allowance, taper relief
and unused annual exemption. If, say, the CGT bill is nil,
she could gift the proceeds of £10,000 under Gift Aid.
Under Gift Aid, the grossed up amount of the donation is 100/78
x £10,000 = £12,820. Alma is entitled to higher
rate relief on the gift of £2,308 (ie (40% - 22%) x
£12,820).
Although Alma has received less tax relief (£4,000 -
£2,308), the charity will have received £12,820
(£10,000 from Alma and £2,820 from the Revenue).
If you would like further advice on this matter, please contact
us.
Qualifying investments
In more detail, the following investments qualify for the
tax relief:
- and
securities listed or dealt in on the UK Stock Exchange,
including the Alternative Investment Market
- shares
or securities listed or dealt in on any overseas recognised
stock exchange
- units
in an authorised unit trust (AUT)
- shares
in a UK open-ended investment company (OEIC)
- holdings
in certain foreign collective investment schemes (foreign
equivalents of AUTs and OEICs)
- freehold
interests in land
- leasehold
interests in land where the lease period is for a term of
years absolute.
You should always contact the charity to ensure that it can
accept the shares or the land. Indeed for land, the charity
needs to give you a certificate stating that it has acquired
the land.
The charity may be able to help you with the transfer procedure.
How
We Can Help
If
you would like to help a charity financially, it makes sense
to do this in a tax efficient way. We can provide assistance
in determining this for you.
Top
of page
For information of users: This material is published
for the information of clients. It provides only an overview
of the regulations in force at the date of publication, and
no action should be taken without consulting the detailed
legislation or seeking professional advice. Therefore no responsibility
for loss occasioned by any person acting or refraining from
action as a result of the material can be accepted by the
authors or the firm.
|
C o m p l e t
e 
Regulated
to carry on audit work for a range of investment business
activities by the Institute of Chartered Accountants in England
and Wales