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Charitable giving

There are a number of tax reliefs available for giving to charities. Charities should be aware of these both to maximise their returns and to inform and encourage potential donors.

The main relief is Gift Aid which applies where individuals give a donation of cash to a charity or community amateur sports club. Where a donation is made under Gift Aid the charity can claim 25% of the net donation direct from HMRC. Therefore, if an individual donates £1,000 the charity can claim £250 from HMRC.

Clearly, donors should be encouraged to pay under Gift Aid as this allows the charity to claim an additional 25% from donors. Mercer & Hole can help charities to register for Gift Aid if they have not already done so.

The individual donor can then claim additional relief for the donation though their self-assessment tax return if they are higher or upper rate taxpayers. Consequently, if a 40% taxpayer makes a £1,000 donation they will receive relief equal to £250 (40% of £1,250 less £250). So in real terms it costs £750 for the individual to effectively give £1,250 to the charity. In the case of a 45% taxpayer it only costs £687.50. Charities need to ensure their supporters are aware of this additional benefit as they may well then give more!

Needless to say a number of conditions need to be met including:

  • The individual must have completed a valid Gift Aid declaration;
  • The individual in the tax year of the donation must have paid sufficient income tax or Capital Gains Tax to cover the repayment to the charity;
  • The individual cannot have received any benefit (subject to certain de-minimus rules and exemptions) as a result of his or her donation.

Mercer & Hole can help to put into place the correct procedures and if required carry out a Gift Aid Audit.

Companies cannot claim Gift Aid as detailed above and instead claim corporate Gift Aid on cash donations to charities by simply deducting the donation from their profit in the year that the donation is made to calculate their taxable profit for corporation tax purposes. The corporation tax rate is currently at a rate of 20% but is going down to 19% from 1 April 2017 and to 17% from 1 April 2020. The charity cannot reclaim any tax.

A further relief available to both individuals and companies is an income tax or corporation tax deduction for the gift of land and buildings or a gift of listed shares and securities. No tax relief is available for the gift of unquoted shares. In this case the charity cannot reclaim any tax, the donor simply obtains a tax deduction based on the market value of the assets donated.

Individuals and companies can gift assets to charities without any taxable gain arising to the donor. Any assets gifted to charities fall outside the scope of Inheritance Tax (IHT) and if at least 10% of an estate’s assets are left to charities the rate of IHT payable on the rest of the assets is reduced from a rate of 40% to 36%.

If you would like to discuss any aspect of charitable giving, please get in touch with me or one of my colleagues and we will be pleased to advise you.



Date: 21st November, 2016
Author: David Hadley


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