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November 8, 2023
There are a wide range of tax reliefs available for charitable giving. However, to obtain the reliefs, make sure the charities are registered. This article considers some of the most popular reliefs available and includes details of the forthcoming changes proposed by HMRC.
The Gift Aid scheme is well-known and provides relief for gifts to charity. Community Amateur Sports Clubs are also able to benefit from the scheme. The scheme applies where gifts are made by UK taxpayers. The donor must complete a Gift Aid declaration confirming that the gift is to be treated as a Gift Aid donation. The gift is treated as being made net of the basic rate of income tax. The charity reclaims the basic income tax from HMRC. If the individual is a higher or additional rate taxpayer, tax relief on the difference between the basic rate and the higher or additional rate, as appropriate, is reclaimed via the Self Assessment tax return.
Lucy is a higher rate taxpayer. She makes a donation of £80 to a charity under the Gift Aid scheme.The donation is treated as made net of the basic rate of tax. The gross donation is £100 (£80 x 100/80). The charity reclaims the tax of £20 from HMRC.As Lucy is a higher rate taxpayer she is entitled to relief at 40% (i.e. £40). Basic rate relief (£20) is given at the time the deduction is made (as Lucy pays the net amount to the charity). The balance of the relief is given via self-assessment by extending the basic rate band.
There is no limit on the donations that can be made under Gift Aid as long as the individual has paid enough tax.
There is a cap on the benefits that may be given to a donor in exchange for a donation. The benefit allowed in relation to gifts of £10,000 is capped at £2,500 or 5% of the donation if lower. Charities can claim Gift Aid on small donations of £10 or less (up to a maximum of £5,000 a year) without the need for a Gift Aid declaration.
Under payroll giving employees can make gifts to charity through the payroll. The donations are deducted from gross pay and as a result tax relief is given at source.
Income tax relief is available for certain gifts of shares and securities to charities. This relief extends to gifts of shares and securities listed on a recognised stock exchange or on the Alternative Investment Market (AIM), shares in an authorised unit trust, open-ended investment company and in certain collective investment schemes. Relief is given on the market value of the shares at the time they are given or sold to the charity, plus costs of disposal, less any consideration received. Relief is claimed via the Self Assessment return.
Income tax relief is also available for certain gifts of land and buildings to charity. As with shares the relief is given on the market value of the property plus incidental costs of disposal less any consideration. It can be claimed via the Self Assessment return.
Tax reductions are available for taxpayers who give a work of art or historical object of national importance to the State. In England, three schemes are available for consideration: Acceptance in Lieu, Cultural Gifts Scheme, and Private Treaty Sales. More information can be found on the Arts Council website.
A reduced rate of inheritance tax will apply where 10% or more of the deceased’s net estate (after deducting IHT exemptions, reliefs and the nil rate band) is left to charity. This rate of inheritance tax on the remainder of the estate is reduced 36%.
Please contact us to discover how you can make the most of the tax reliefs available. We would be delighted to assist you.