What are the best ways to give money to charity for tax purposes?
I am considering giving money to charity and wanted to know the best way for tax purposes.
There are a number of ways to give to a recognised charity which can create tax benefits for the donor.
Any charitable gifts that you make either during your lifetime or in your will are exempt from Inheritance Tax.
From April 2012, if a person leaves 10% or more of their estate to charity, then Inheritance Tax charged on the estate will be at a rate of 36% instead of the usual 40% rate charged on estates over £325,000.
If you make a cash donation and are a UK taxpayer, then it will be possible to Gift Aid your donation. The charity will be able to claim a basic rate tax credit from H M Revenue & Customs and, under current legislation, higher rate taxpayers can extend their basic rate bands, creating a potential tax refund. You must be certain that you have paid sufficient tax to cover the credit paid to the charity or H M Revenue & Customs will seek to recover the shortfall from you as an individual as the charity has had the benefit.
You can give a donation directly to a charity from your pay or pension using the Payroll Giving Scheme (this does not include Community Amateur Sports Clubs). This is tax efficient, as the donation comes from your gross salary before tax is deducted, so you do not pay tax on the amount. The tax relief you get depends on the rate of tax you pay, so to donate £1 you pay £0.80 if you are a basic rate taxpayer, £0.60 if you are a higher rate taxpayer and £0.55 if you are an additional rate taxpayer.
There are also tax advantages by giving assets to charities, as you will get relief from Capital Gains Tax if you give an asset to a charity or sell them an asset at less than market value. It is therefore more tax efficient to give the asset rather than sell the asset and gift the sale proceeds. You can obtain relief by selling on behalf of the charity but need clear instructions from the charity as without this you could be personally liable to Capital Gains Tax. You will also be able to claim Income Tax relief on the gift.
The above applies to individuals; there are different rules for limited companies.
You will need to keep a record of all donations made, whether they are cash or assets, to ensure that the correct tax relief claims are made and the right amount of tax is paid.
I hope that the above will assist you, but please discuss your individual circumstances with your financial advisor before making your decision. You may also need to consider any legislation changes that arise from the Autumn 2018 Budget.
Further information can be found at www.gov.uk/donating-to-charity