Gifts that keep on giving

Many people will have charities whose causes are close to their hearts and to whom they regularly donate. Whilst tax may not be the primary driver for making such donations, there are important tax benefits which can make supporting great causes even more worthwhile.

Summarised below are the income tax, capital gains tax (CGT) and inheritance tax (IHT) advantages of charitable gifts.

Please note that a reference to ‘charity’ in this article refers only to UK/EEA charities and registered community amateur sports clubs (CASC), unless otherwise specified.

Income Tax

Gift Aid scheme

Making charitable donations under Gift Aid is a win-win for all involved. By signing a declaration or ticking the Gift Aid box, the charity is able to claim an additional 25% from the government whilst higher and additional rate taxpayers will benefit from 20% or 25% tax relief.

In order to claim Gift Aid, you must be a UK taxpayer and pay sufficient tax (income tax or capital gains tax), otherwise you will incur a tax charge sufficient to cover the tax being reclaimed by the charity from the government.

Charitable donations can be particularly useful for those earning over £100,000 and starting to lose their personal allowance, as Gift Aid donations extend the £100,000 threshold. Further information of Gift Aid donations can be found here: Making Gift Aid donations.

If you regularly make donations to multiple charities, or have longer-term philanthropic aims, setting up a Charities Aid Foundation (CAF) account or a charitable trust can help to reduce administration. With both structures, you can make one larger payment each year to the account/trust, resulting in having only one single Gift Aid statement in each tax year. The account/trust is then able to distribute the funds out to multiple charities.

Payroll Giving Scheme

Payroll giving is often termed ‘Give As You Earn’, and works by deducting a chosen amount from your gross monthly salary. For higher and additional rate taxpayers, this expedites the tax relief as the donation is taken from your salary before tax (but after National Insurance).

Gifting assets other than cash

Gifts of assets other than cash, such as quoted shares, also have income tax advantages in that the value of the shares, plus any costs of transfer, is deducted from your taxable income thereby reducing your income tax liability.

Gifting shares or property which produce income is also a great way for the charity to continue to benefit from a donation.

Please note that income tax relief is not available on gifts to CASCs.

Capital Gains Tax

There is no Capital Gains Tax payable on the disposal of assets such as land, shares or property to a qualifying charity. These disposals are treated as a no gain/no loss transaction and thus it is possible to gift assets that have been owned for a while, and which have increased in value significantly, without incurring any tax charge.

Inheritance Tax

Lifetime gifts to qualifying charities are exempt from Inheritance Tax (IHT).Also, provided 10% of your net estate is left to charity, not only will the gift be exempt from IHT but a lower rate of 36% IHT will be available on your estate, as opposed to 40%.

If you are interested in finding out more about the tax benefits of charitable giving, please contact Ellie Haile, any member of the Professional Practice and Private Client team or your usual Crowe contact.