Three questions to ask yourself to make your charitable donations go further
With 75 per cent of charities anticipating higher demand for their services in 2021*, maximising your charitable donations is more important than ever. Here are three questions to consider to help your donations go further.
1. What do you want to give?
Money – the most common asset to give, and perhaps the easiest, is cash. If you are donating to an eligible charity and make a Gift Aid declaration, the charity is able to claim the basic rate of tax that you have paid on the grossed-up amount of the donation. If you are subject to higher rates of tax, the difference between the tax rate paid and the basic rate can be claimed through your self-assessment tax return or by HMRC amending your tax code.
Payroll giving – the donation comes from gross pay, and therefore includes the income tax that would otherwise have been deducted. Other than informing your employer of the amount to be deducted and donated, no further action is needed. Your employer simply deducts the donation from your pay after deducting Class 1 National Insurance, but before calculating PAYE tax.
Land, property or shares – if your chosen charity can accept donations of this kind, 'qualifying' assets can provide the donor with income tax and capital gains tax relief. Examples include shares traded on a recognised stock exchange, units in an authorised unit trust or a qualifying interest in land, where all beneficial interest is transferred.
Cultural objects – if you are legally and beneficially entitled to the object in question and it isn't owned jointly (or in common) with others, you can gift it to your chosen charity, assuming they can accept assets in this way. Such donations must be made within your own lifetime. If formally recognised by the Arts Council, you may be able to obtain a tax reduction of 30 per cent of the agreed value of the object that is being donated in the case of income tax/capital gains tax, and 20 per cent of the agreed value in the case of corporation tax.
2. When do you want to donate?
Deciding whether you want to donate during your lifetime or after death will have implications for tax and wealth planning, which may influence decisions on maximising the amount gifted.
In the examples above, clearly donating through payroll giving and donating a cultural object will need to occur during your lifetime. Donations of money or assets, however, can form part of your will and inheritance planning.
Bequests made to a charitable cause in your will not only reduce the value of your estate when determining the inheritance tax (IHT) liability, they can also have the effect of reducing the rate of inheritance tax payable on the remaining estate. For example, gifting more than 10 per cent of your estate to charity means, firstly that the donation to the charity is not subject to IHT, and secondly that the remainder of the estate not passed to charity is taxed at the reduced IHT rate of 36 per cent.
3. How do you want to give?
Depending on the answers to the above questions, the amount and frequency you want to donate, what your aims and motivations for giving are and how hands on you want to be, there are a range of mechanisms for giving. These range from making a straightforward gift of cash or assets, or a bequest in your will, to setting up your own foundation or channelling your donations through a Donor Advised Funds account.
At a time when the need is so great, finding the best way to make a difference can feel overwhelming, but by taking the time to discuss your plans and options with your Relationship Manager or Wealth Planning Advisor, as well as with your Tax and Accountancy team, you can find a solution that optimises your donation and ensures that your money goes further.
* Charity Finance Group, Economists sound warning over 'charity crunch', November 2020