Charity begins at .................lunch?
27 August 2013
Those of you who have read our recent Newsletters will be aware that Fiona Donaldson, one of our Tax Partners, is Chair of Lunch with an Old Bag, a fabulous annual fund-raising lunch held at Prestonfield House, in aid of The Prince’s Trust Scotland.
Springfords are also proud to be joint sponsors of this year's event and the Springfords ladies who’re going along to the lunch on 13th September are hugely excited about the day, especially since it was announced that this year’s entertainment will be provided by none other than The Three Degrees. The blokes are a bit baffled by the whole thing, but once the chat in the office about designer handbags and Three Degrees classics had died down a little, it focused us on the question of charitable giving generally, and, most importantly from our point of view, how to give tax efficiently. We often receive queries from clients on this front, so thought that a summary of the tax benefits and implications of charitable giving might be useful;
- Charitable donations paid via Gift Aid allow the charity to treat the amount received as being paid net of basic rate (20%) tax, and the charity then claims the difference as a tax refund i.e. for every £80 you give, the charity declares £100 and claims a £20 tax repayment.
- Higher rate taxpayers benefit from an additional 20% or 25% (depending on whether liable at 40% or 45%) tax relief by declaring Gift Aid contributions on their tax returns or, in some cases, having the Gift Aid payments reflected in their PAYE tax code. Payments can be carried back to the previous tax year to speed up the relief.
- Auction purchases at charity events may also qualify for relief, where the price paid for the item is much higher than its actual value. In order to obtain this relief, it must be made clear at the start of the auction what the auction lot is worth and, of course, for unique, money-can’t buy items (eg celebrity designer handbags) this may not be possible.
- Regardless of the amount, any money left to charity on death is not chargeable to Inheritance Tax (IHT). Where at least 10% of your estate is left to charity, the rate of IHT is reduced from 40% to 36% on any amounts that remain chargeable, providing a saving in the overall IHT cost.
- Investments in certain shares and securities, and land and property, can be gifted to charity without capital gains tax or IHT implications. Income tax relief is given at your highest rate of tax on the value of the gift, up to the total of your income for the year but, unlike cash donations, the relief can only be claimed in the tax year the gift is made. Valuations and any correspondence concerning the transfer of these types of assets should be retained to support any claim made for relief.
- Tax relief is available at source by gifting to charity through your salary, so higher rate tax payers will see the benefit from the additional 20%/25% tax relief as an increase in their net pay . The donations can be started and stopped easily via payroll, and are made anonymously. Payroll giving does not reduce national insurance contributions, which continue to be calculated on the gross salary before any charitable donations are deducted.
- You must have paid tax in the tax year in which you make a Gift Aid donation, sufficient to cover the relief claimed by the charity. HMRC will otherwise require you to pay the difference. If this is a concern, we can advise on other options.
If you’d like more information about how to give tax efficiently to charity (either now or via your Will), just get in touch with your usual Springfords contact.
If you’d like more information about Lunch with an Old Bag or would like to contribute to the fund-raising (tax-efficiently, of course!!) Fiona can be contacted at firstname.lastname@example.org.
This is a general guide which is intended to give background information and is not a substitute for taking specific advice based on your particular circumstances.