The gift of (tax efficient!) giving…


Currently only 7% of people leave a legacy to charity in their will and this may well be due in part to our system of tax breaks for donors which has been described as “bafflingly complex”  – suggest deliberately so, so that they are little taken advantage of.

Gifts made to UK charities are effectively free of inheritance tax. From April 2014, anyone leaving 10% of their taxable estate to charity will qualify for a reduced rate of inheritance tax, currently 36% (2014/15) – in other words, they pay 40% IHT on the remaining 90% they don’t give to charity, and nil on the gift itself. Individuals, via their will, can either leave a fixed amount, or some/all of what’s left after other gifts have been distributed

Aside from IHT rules, there are number of other tax breaks to consider if you are thinking of donating – to the arts, or indeed to any other cause (although leaving your body to medical science has nothing however to do with the taxman…)

–       Capital Gains: Donors of assets, land or shares to UK charities are not liable to capital gains tax, even if the asset is worth more when you donate it than when you acquired it.

–       High Rate Taxpayers: Those who pay tax at 40% are eligible to reclaim 25p from the taxman for every £1 donated to charity. Top rate taxpayers, those paying 45% can claim an extra 37.5p on every £1. For example, if you pay tax at 40% and donate £100, the total value of your donation to the charity is £125 – so you can claim back 20 per cent of this (£25) for yourself via your Self Assessment tax return

–       Gift Aid: This is a government-sponsored scheme that enables charities to claim an additional 25p from every £1 donated by UK taxpayers. The scheme can apply to one-off donations of any size, or those over a specific period, and can even be backdated for up to four years. If you give through Gift Aid however, you need to make sure that you’ve actually paid the amount of tax that the charity will claim back. For example, if you donate £100 in a tax year, you must have paid at least £25 tax over the year.

–       Shares: You can also give shares and other UK registered assets to charity and claim tax relief by offsetting the value of the shares against your income tax on your self-assessment return. By signing the certificates over to a charity, you will not be liable for capital gains tax on the difference between the purchase price and their value when you make your donation.  You can also claim back other costs such as transfer fees or stamp duty. Companies can also give shares to charities – in fact, it has been calculated that if the UK’s top 100 companies gave just 0.5% of their shares, it would raise £8bn for charity.

–       Land & Property: All donations of land or property to charity get full income tax relief. For example, if you are a higher rate taxpayer and you give a property worth £100,000 to charity, you can deduct £40,000 off your income tax bill.

For advice on Estate Planning & Inheritance Tax  please contact us.