As the tax year draws to a close, here’s a little reminder of the many ways in which individuals and companies can give to charity while benefiting from tax relief. Understanding these mechanisms can mean your giving goes further, whilst at the same time you can potentially reduce your tax liabilities. Here’s a snapshot of the tax efficiencies of giving in the UK.
Gift Aid Scheme
The Gift Aid scheme is one of the primary avenues through which individuals can maximize their charitable donations. When a taxpayer donates to a registered charity through Gift Aid, the charity can reclaim basic rate tax on the donation from HM Revenue & Customs (HMRC). This means for every £1 donated, the charity receives an additional 25p. Higher and additional rate taxpayers can claim back the difference between the basic rate and their higher or additional rate of tax, further increasing the benefit of their donation.
For example, if you donate £100 to charity through Gift Aid, the charity receives £125, and if you’re a higher rate taxpayer, you can claim back £25 (£125 × 20%) or £31.25 (£125 × 25%) if you’re an additional rate taxpayer. These benefits to charities and additional reliefs to individual donors are available only if made via gift aid.
Payroll Giving
Payroll Giving, also known as Give As You Earn (GAYE), allows employees to donate to any UK charity directly from their salary before tax is deducted. This means the donation is made from pre-tax income, providing immediate tax relief at the individual’s highest rate of tax. Many employers offer Payroll Giving schemes, making it a convenient and tax-efficient way to support charities.
Donating Land, Property, or Shares
Donating land, property, or shares to charity can be a tax-efficient way to give, particularly for those with substantial assets. By donating such assets, individuals can claim income tax relief at the market value of the asset at the time of the donation. Additionally, capital gains tax (CGT) is not applicable on the gift, which can result in significant tax savings, especially if the asset has appreciated in value.
Inheritance Tax (IHT)
Charitable giving can also play a role in estate planning and mitigating inheritance tax liabilities. Gifts to charity are exempt from IHT, meaning they are not included in the value of your estate for tax purposes. Moreover, if you leave at least 10% of your estate to charity in your will, the rate of IHT applied to the remainder of your estate reduces from 40% to 36%.
Corporate Giving
For businesses, charitable giving can also be tax-efficient. Companies can deduct donations to charity from their profits before calculating their corporation tax liability, potentially reducing their tax bill. Furthermore, donating to charity can enhance a company’s corporate social responsibility (CSR) profile, which can have reputational and marketing benefits.
Conclusion
In the UK, there are numerous tax-efficient strategies available to individuals and businesses looking to support charitable causes. Whether through schemes like Gift Aid and Payroll Giving, donating assets, or incorporating charitable giving into estate planning, there are opportunities to maximize the impact of your donations while minimizing your tax liabilities.
However, we would always recommend you seek professional advice from tax advisors or financial planners to ensure that your charitable giving aligns with your overall financial goals and tax planning strategies.
We love a win-win at CCF, and by harnessing the tax efficiencies of giving, you could make a huge difference to your less fortunate neighbours in Cheshire whilst optimizing your financial situation.