Charitable Giving
Cash gifts to UK charities
Gifts to charities via Gift Aid remain one of the tax favoured options for claiming tax relief. It is important that you tick the relevant box or make the declaration when making the gift so that you can claim higher rate tax relief and the charity can reclaim the basic rate tax that you have paid by making the gift out of taxed income.
As tax rates and personal allowances were frozen in the 2021 Budget, more people will find themselves paying tax at the 40% and 45% rates. When making charitable donations it is important that the tax-paying spouse makes the payment and claims the gift aid to maximise the tax relief.
Gifts made in the following year can be carried back to the prior tax year, thus accelerating the tax relief. For example, you can make a gift after 5 April 2021 and claim it on your 2020/21 tax return if the gift was made and your tax return is filed by 31 January 2022.
Impact of not claiming Gift Aid
| Cash donation without Gift Aid | £200,000 | Cash donation with Gift Aid | £200,000 |
| Cost to taxpayer | £200,000 | Cost to taxpayer | £200,000 |
| Less income tax relief | (£62,500) | ||
| Net cost to taxpayer | £137,500 | ||
| Receipt to charity | £200,000 | Receipt to charity | £200,000 |
| Add Gift Aid | £50,000 | ||
| Value of gift to charity | £250,000 |
Assumes 45% rate taxpayer
Gifts of listed shares
The tax relief when you give listed shares if different to the gift aid process. You can claim income tax relief on the full value of the gift, and you do not have to pay capital gains tax. For this reason, it might make sense to gift some shares with a large in-built gain rather than sell them first and donate the cash. You can claim the market value of the shares on your tax return and pay no capital gains tax. If you have shares which are standing at a loss, it is likely better for you to sell these and donate the proceeds instead. This is because the loss can offset any other gains you might have and be carried forward, and there is no capital gains tax on sale anyway.
Many charities accept gifts of listed shares.
| Gift of shares | 20,000 worth £10 each, original cost £2 |
| Cost to taxpayer | £200,000 (value of market gift) |
| Less income tax relief | (£90,000) |
| Less capital gains tax saved by not selling the shares | (£32,000) |
| Net cost to taxpayer | £78,000 |
| Value of gift to charity | £200,000 |
Assumes 45% rate taxpayer/20% CGT payer
Gifts of land or property
Tax relief is available when you gift land and property in the same way as when you donate shares. The market value plus any additional costs like legal fees is the amount you can claim tax relief on your tax return. If the charity asks you to sell the property, you can still claim relief from CGT, if you have records that the charity asked you to do that. You must donate the entire property for tax relief to apply.
Other ways to donate
From an income tax perspective if your employer runs a payroll giving scheme, this is an effective and easy way of donating because the tax relief is given at source at all your tax rates, and you do not have to file a tax return to claim the additional higher rate tax relief.
Gifts via a will
Giving at least 10% of the net value of your estate to charity, the tax rate applying to the whole estate is reduced to 36%. It is also possible to gift the whole estate to charity and there will be no IHT to pay.
US and UK tax relief
If you are a US taxpayer, it might be beneficial for you to claim tax relief both in the UK via Gift Aid and on your US tax return. This can be done in several ways, such as by using a dual qualifying donor advised fund. Contact us for more information.
Overseas funds
If you are regarded as non-domiciled in the UK and taxed on the remittance basis it is possible for you to structure your giving so that you can use offshore funds to donate without triggering a UK tax charge on remittances. Usually if you have a mixed or tainted fund offshore, bringing that money to the UK would trigger a UK tax charge and some complicated calculations to work out the extent of the tax exposure. By donating to the offshore entity of your chosen charity, you can efficiently use those funds instead of using clean capital that could otherwise be spent in the UK.
Our tax team are here to help
If you would like to find out more about any of the issues covered in this factsheet, please contact
Nicola Dunn, Senior Tax Advisor at LK & Associates. Nicola can review the best options for your circumstances and help you to maximise the value of your donations.
Nicola Dunn, Senior Tax Advisor
Nicola is a specialist UK and US tax professional with over 30 years’ experience. She advises clients on all aspects of UK and US tax including inheritance and estate tax planning, business exit strategy, capital gains tax for sale of property plus other assets and the interaction of UK and US tax to optimise the worldwide tax position. She has extensive experience of cross-border issues and non-UK domiciled individuals.
Nicola can be contacted via nicola@lkassociates.co.uk or by telephone on 020 3915 8585.