Tax Matters

There are four main ways in which UK taxpayers can increase their donation to charities.
These are:

  • Gift Aid
  • Payroll Giving
  • Legacies
  • Share giving

For charities to be able to benefit from these tax-efficient methods of giving, they need to register with HMRC.

 

Gift Aid

If a donor has declared to the charity that they are a UK taxpayer, then charities are able to claim back 25p per pound donated. In addition to this charities can claim an extra 3.2p per pound donated until April 2011 which the government has offered as ‘transitional relief’ when the basic rate of tax was lowered.
Higher rate taxpayers are also able to claim the difference between the basic rate of tax and the higher rate in their self-assessment tax returns. This can then be donated to the charity of their choice and the amount can be giftaided.
The Institute of Fundraising has more information on how best to use Gift Aid and the steps that need to be taken in their booklet, Making Giving Go Further [2]. Further information can also be found on the Gift Aid wiki page.
Although £967m was given to charity through Gift Aid in 2008/9, the Charities Aid Foundation estimates that around £750m goes unclaimed each year.

 

Legacies

Donors can leave money to charity in a will. There are two types of legacy, a pecuniary legacy where a lump sum, property, items of value (sports car, painting) or shares are donated, or a residuary legacy where a percentage of the net value of the estate is donated. In order to leave money to a charity, a donor has to create a will or amend an existing will. They should seek legal advice about doing this.
All charitable donations in a will are completely free of inheritance tax. IHT is charged at 40% on estates exceeding the threshold of £350,000 per individual.
Remember a charity has more information on leaving a gift in a will [5], including a section with information for charities.
Legacies are a huge source of income for charities and bring in around £1.8bn to the charity sector, but only 14% of wills include leagacies to charity.

 

Payroll Giving

Payroll Giving enables employees to give regularly to charity direct from their salaries. Employees can support as many charities as they like and give as much as they wish. In addition to this some employers match giving by their workforce adding even more incentive to give to charity in this way.
For a £10 donation to go to charity, it only costs £8 for a basic rate taxpayer, £6 for those paying tax at the 40% rate, and £5 for those in the highest tax bracket. The online payroll giving calculator allows you to work out how much goes to charity [3].
Payroll Giving needs to be set up by employers. They will need to use a payroll giving provider, Give As You Earn run by the Charities Aid Foundation [4] is the largest payroll giving provider in the UK.
There are currently approximately 10,000 employers offering payroll giving with around £113m going to charities through payroll giving in 2007/8.

 

Share Giving

Donors can give shares to a charity and get substantial tax relief on their income tax bill, as well as exemption on capital gains tax.Tax
So if they donated £5,000 of shares to charity, they can claim back income tax relief (either 20%, 40% or 50% depending on their tax status) and the donor will not have to pay any capital gains tax having donated the shares to charity.
Oxfam has a handy donor guide to donating shares which might be good to use as a template for any literature on donating shares [6] while the Institute of Fundraising’s Making Giving Go Further [7] has more practical information for charities to take steps to receiving donated shares.