For those of a benevolent persuasion, it may be troubling to learn that according to the recently published CAF (Charities Aid Foundation) World Giving Index, there has been a global decrease in giving over the last 12 months. This follows a high point recorded by the same index last year. The proportion of people across the world who reported donating money in 2016 (when the research for this year’s report was conducted) is the lowest seen for three years. The UK which has for some years been the most generous country in Europe, according to the Index, fell from 1st to 2nd place in Europe.
At Holden & Partners we have always advocated that clients, when appropriate (and if they have a particular charitable interest), maximise the generous reliefs available for charitable gifting. As you may or may not know, there are a number of ways that allow individuals to give to their favourite causes whilst at the same time benefitting from the generous tax concessions on offer. The main ways of facilitating charitable giving for individuals are as follows:
Donate money to charity
If you give money and sign a Gift Aid declaration, the charity can reclaim the basic rate tax you’ve already paid on that donation. This means that a £1 donation is worth £1.25 to the charity.
If you’re a higher-rate taxpayer and fill in a Self Assessment tax return form, you can also claim back the difference between higher rate and basic rate tax on the value of your donation. For a 40% rate taxpayer, that means for every £1 you donate, you can claim back 25p in tax relief.
Give straight from your salary
If your employer has a payroll giving scheme, such as Give As You Earn, you can give directly to charity from your pay before tax is deducted. This means you receive tax relief at your highest rate of tax, so giving £1 would cost a basic rate taxpayer only 80p.
Transferring/gifting shares or units in an investment fund to a charity If you own shares or units in an investment fund, you can sell them and give the proceeds to charity via Gift Aid. Alternatively, and significantly more tax efficiently, you can give your shares directly to a charity. However the shares will need to be listed on a recognised stock exchange to be accepted by the charity. Giving shares is highly tax-effective, as donors receive full tax relief on any capital gains tax and can also claim income tax relief on the fair market value of the shares. For example, if you own units in a fund worth £20,000, have gross taxable income of £20,000, and gift the units to charity, you could reduce your tax liability through charitable giving to zero. If the units had previously gained in value by £15,000, for example, since they were purchased, there would be no capital gains tax to pay on the disposal. These gifted funds are also out of your estate for inheritance purposes.
Many clients at Holden & Partners, with our assistance, have set up a general charity account to help facilitate charitable giving. Crucially, such a charitable account offers individuals flexibility over giving whilst also providing the ability to benefit from all the aforementioned tax reliefs. Shares can be gifted to the account, with tax reliefs received, whilst the individual then has the freedom to select a particular charity to which the funds should go and when. The account can have a cash balance from previous transfers so the individual can select a cause close to their heart when the time arises. The account can be topped up with further transfers or payments and can be held by the client indefinitely.
Charitable bequests through your Will
If you do not want to or cannot make gifts to charity in your lifetime, an alternative is to make provision for charitable bequests in your will. Significantly, such bequests are not liable to Inheritance Tax (IHT). If you leave more than 10% of your net estate to charity the rate of IHT falls from 40% to 36%.
Give land and property
Giving land and property direct to charity, like gifting shares and fund units, is also exempt from capital gains tax and inheritance tax, and income tax relief can be claimed on the value of the gift.
The UK taxation system, due to the tax reliefs on offer, effectively encourages charitable giving and it will be interesting to see whether the fall in charitable giving across the world and in the UK is a long-term trend. At a time when many charities in the UK have suffered from government cuts to their funding, this is a major concern, especially for all those who depend on the services and support they provide. Facilitating charitable giving is an important aspect of the service we provide to our clients; so if you have any further questions on this area, please speak to your adviser. As you can see, when it comes to charitable giving, the benefits of being benevolent are both altruistic and financial.