For individuals planning to make donations to UK registered charities
“We ourselves feel that what we are doing is just a drop in the ocean. But if that drop was not in the ocean, I think the ocean would be less because of that one missing drop.”
Mother Teresa on Charity
Donations to charities
The Government encourages individuals and businesses to give to charities and offers a range of incentives, (income tax, corporation tax, capital gains tax and inheritance tax) for either the donor or the charity or both.
These tax incentives are only available for UK taxpayers making gifts to UK charities.
- If you pay UK tax on your income or gains and then make a Gift Aid donation, UK charities can claim back basic rate tax relating to that donation directly from HM Revenue & Customs (HMRC)
- As an example: Basic rate tax is currently 20% so if you give a gift of £1,000 cash to a UK charity, the charity can claim 20/80 x £1,000. The gross gift to them is £1,250. For donations made between 6 April 2008 and 5 April 2011 the charity will also be entitled to a separate government supplement of three pence in every pound given
- If the donor pays sufficient tax at the higher rate you can claim the difference between the tax at the higher rate (40%) and the basic rate (20%) on your gross gifts, ie (40 – 20)% x £1,250 = £250. The net cost to you is therefore £750
Gifting land/buildings or shares/securities – capital gains tax
- If you give assets (other than cash) to a charity and you make an outright gift of the asset, the disposal is treated as being at such a price that there is neither a chargeable gain nor an allowable loss
- If the charity pays you for the asset but the amount paid was less than you would have originally bought the asset for then the disposal is also treated as being at such a price that there is neither a chargeable gain nor an allowable loss
- If the charity buys the asset for more than you originally paid for it then you should calculate the capital gain on the basis of the amount the charity actually pays you
Gifting land/buildings or shares/securities – income tax
- If you give land, property or qualifying shares to a UK charity, or sell them to a charity at less than their market value, you can claim income tax relief as well as getting capital gains tax relief
- Generally speaking:
Any shares or securities must be quoted on recognised stock exchanges;
Land or buildings must be in the UK and the donor cannot retain any rights over the property, eg if you give land to the charity but retain a right of access over the land the gift will not qualify, (nor the gift of a building where you retain a right of occupancy);
- The valuation that is used for taxation purposes must be the market value of that asset on the date ownership changes hands
- If you make an outright gift the relief available is the market value of the asset. If you sell at an undervalue the relief available is the difference between the open market value and the price paid by the charity (plus any incidental costs)
- You get the income tax relief at your highest rate of tax but the relief can only be claimed for the year in which the gift was made
Gifts in your Will – inheritance tax
- If you leave a gift to a UK charity in your Will the value of the gift will be deducted from the value of your estate before inheritance tax is worked out. Gifts made to a UK charity in the seven years prior to your death are also covered by the same exemption from inheritance tax. If your estate is liable to inheritance tax this will reduce the overall amount of tax due from your estate.