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Charitable Thoughts

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Posted on: December 11th, 2019 by Austen | | Categories: Capital Gains, Payroll

Charitable Thoughts

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We British are a very charitable nation and are always looking at ways to help our local and national charities in a tax efficient way. The most popular option is by way of the Gift Aid scheme. Assuming you have paid enough income or capital gains tax and made a proper Gift Aid donation, then, the charity concerned can claim back from HMRC £25 for every £100 donated. Dependent upon the level of your income you can claim additional tax relief for the gift
you have made.

Some people will use the Payroll Giving Scheme run by their employers or pension providers. You can donate straight from your wages or pension. This happens before tax is deducted from your income. This means you are receiving tax relief at source potentially saving up to 45% or 46% (if a Scottish taxpayer).

But what if you are asset rich and cash poor and want to help a charity financially? You could sell the asset first and then use the Gift Aid scheme to make the charitable payment. If you make a profit on the sale of the asset you could end up paying Capital Gains Tax of up to 28% on the sale.

However, you could consider gifting shares/land/buildings direct to the charity instead of cash. By doing it this way you can avoid the Capital Gains Tax problem and you can also potentially obtain income tax relief against your taxable income based upon the market value of the asset at the date the donation was made.

For example:

Your income for the year was £90,000 and you decide to gift £20,000 shares to a charity. You receive no payment
or benefits from the charity for those shares. You avoid any Capital Gains Tax plus you would receive tax relief of £8,000 (£8,200 in Scotland). A net cost to you of £12,000 (£11,800 in Scotland).

You can also leave assets (cash or otherwise) in your Will to charity. The value of these assets will fall outside your Estate for Inheritance Tax purposes. If you gifted 10% or more of your Estate to charity then the remaining part of your Estate, if liable to Inheritance Tax (IHT), would only attract it at a tax rate of 36% as opposed to 40%. Please
contact us if you would like an IHT review or to look at the most appropriate way for you to make charitable payments during your lifetime.

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