Tax-efficient giving for individuals
Advice about charitable gifts from individuals is available from HM Revenue and Customs. A summary of key information is below. If you have a personal accountant, we recommend you consult them for advice about the most tax effective gift for you.
Gift Aid enables charities you support to get extra money on your donation without it costing you a penny more. To make a Gift Aid donation, you must be a UK taxpayer. Your donation is treated as if basic rate income tax had been deducted: charities can therefore reclaim that tax from HM Revenue & Customs (HMRC).
For example, on your donation of £10,000, we can claim £2,500 in Gift Aid, meaning your gift total will be £12,500.
Tax relief for higher rate taxpayers
If you pay tax at the higher rate, you can claim back the difference between the higher rates of tax (40% or 45%) and the basic rate (20%) on the total value of the donation.
For example, if you pay the 40% rate, a donation of £10,000 allows you to recover £2,500, so the donation costs you only £7,500 net, but the Community Foundation receives £12,500.
If you pay the 45% rate, a donation of £10,000 allows you to recover £3,125, so the donation costs you only £6,875 net, but we receive £12,500.
If you complete a Self-Assessment tax return and are entitled to a tax refund, you can choose to have all or part of the repayment sent directly to a charity of your choice. This is called ‘Self Assessment Giving’ or ‘SA Donate’. You can also ask the repayment to be made as a Gift Aid donation. HM Revenue & Customs (HMRC) sends your refund (plus any Gift Aid tax repayment) directly to the charity by electronic transfer.
Gifts of assets: land, buildings, shares etc.
Individuals can get tax relief on gifts to charity of certain listed shares, securities and other investments. You can get income tax relief, in addition to the capital gains tax relief on gifts of assets to charity. The tax relief applies if you give, or sell at less than market value, any qualifying investments to a UK charity.
When you make a gift of individual shares (care needed if offshore funds are gifted), there will be no capital Gains Tax (‘CGT’) payable (thus ideally investments standing at a gain should be transferred to your Charitable Trust) and you will be able to claim full Income Tax relief at your highest rate. On the date you give instructions for the transfer of shares to take place , this will be treated as a deemed disposal for CGT purposes and you will have been treated as disposing of the shares at the market value on this date. Your Charitable Trust will receive these shares at that market value. You will thus include this in your tax Return and will thus be able to claim tax relief and you will not be able to be liable to CGT.
So for example
- You have 10,000 shares you would like to transfer to your Charitable Trust;
- The price when you purchased them was £2. They are now worth £4 each thus a total value of £40,000 at point of donation;
- As a 45% tax payer , you will receive £18,000 tax relief , and not be liable to CGT on that gift;
- The net cost to you of making the donation is £22,000;
- Your Charitable Trust will have £40,000 worth of shares to onward gift to Charity.
An unlimited amount can be contributed to charity via payroll giving. It costs you less to give because your donation is given to charity from your gross salary before any tax is taken off – so you don’t pay tax on it.
Giving in your will
If your estate is liable to Inheritance Tax you could choose to leave money to charity to reduce the overall amount of tax due from your estate. Find more information about leaving a gift in your will here.
Tax-efficient giving for companies
For information about gifts from companies to charity, we advise you to visit the HMRC website.
Donations by limited companies
Your company’s donation to charity is deductible from its total profits when calculating Corporation Tax. Corporate donations are not eligible for Gift Aid.
Gifts of land, buildings or shares
Your company could benefit from Corporation Tax relief if it gives land, property or qualifying shares to a charity, or sells them to a charity at less than their market value.
An unlimited amount can be contributed to charity via your employees’ payroll giving. It costs your employees less to give because their donation is given to charity from their gross salary before any tax is taken off – so they don’t pay tax on the gift.