Charitable giving

If you are planning on making a gift of any amount to charity it is worth considering how you give it.

Gifts to charitable organisations in your will
Any gifts to charitable organisations are free of inheritance tax and thus could reduce your taxable estate. So assuming that your estate is over the nil rate band of IHT then you could give say £50,000 to charity and they would benefit from the whole £50,000.

However, if it was left to a son or daughter they would get £30,000 only (£50,000 less 40% inheritance tax).

Gifts to charitable organisations in your lifetime
Whilst the above gifts are clearly tax efficient from an IHT point of view, any gifts to charities during your lifetime will also be allowable under gift-aid rules. This means that the charity is able to reclaim basic rate tax relief on the contribution made.

Thus the same gift of £50,000 made during your lifetime would allow the charity to reclaim basic rate tax relief; that would mean they get the £50,000 plus £14,000, £64,000 in total.

If you are a higher rate tax payer then you also get to reclaim the difference between the basic rate and higher rate tax on the gift. Thus in this case the gross gift is assumed to be £64,000 and the tax reclaim for you £11,600.

Important note
Please note that you must pay at least the amount of tax (income or CGT) being reclaimed by the charity. You must also fill in and give the charity a gift aid declaration for them to be able to claim tax relief.

Business owners
It is worth noting that if you own your own limited company, the most tax efficient way of giving would be to make a gift out of the profits of the business direct rather than personally. By giving in this way, you will save both the income tax (at 20% or 40%) and the National Insurance cost (employers and employees worth 23.8%). Dont forget to gross up the gift by the amount of saved tax & NI.

Gift of shares

Making a charitable gift of shares can be a highly tax effective way of supporting a charities work. In addition to the benefit to the charity, you, the donor, benefit from tax relief in two ways:

  • Income Tax relief on the value of the shares (ie you could get an income tax refund)
  • Exemption from Capital Gains Tax

By donating shares to charity there is no gain or loss for Capital Gains Tax purposes i.e. if the shares have made a gain the donor will not be taxed on it if they donate shares.

You can get more information by visiting  HM Revenue & Customs:

Payroll giving
You may authorise your employer to make a deduction from your pay packet payable to the charity of your choice. The government are providing a 10% supplement for donations made in this way.