The charitable cat has more ways
My wife describes me as the scrooge of South Yorkshire. Bah humbug follows me around wherever I go which I find particularly galling bearing in the mind the reputation that the whole of Yorkshire has for being tight-fisted anyway. Her reference to a crow bar and my wallet I’m sure warrants divorce proceedings. But I won’t give her the satisfaction. However, with her barbed wit still ringing in my ears I wanted to think of different ways I could help my local charitable concerns and see how that interacts with the tax system both in respect of myself and the charity.
The most obvious route I suppose is through the gift aid scheme in the form of cash. As long as I have paid enough income or capital gains tax then the charity can claim back from HMRC 25 pence for every £1 donated if I have made a Gift Aid declaration.
If I am a higher rate taxpayer or an additional higher rate taxpayer my basic and higher rate tax bands are extended by the gross charitable donations which means more of my income is taxed at the lower rates. This gives the higher rate taxpayers further tax relief of up to 26% in Scotland and 25% in the rest of the UK.
In fact the relief is even higher where my income is just over the £100K threshold at which point the personal allowances are being tapered.
If my income for this tax year was £123,700 and I make a net Gift Aid payment of £20,000, because of that gift aid payment, I will obtain tax relief of £5,000 plus recovery of my personal allowances provide additional relief of £4,740. The actual cost to me of the Gift Aid payment is only £10,260. The charity gets £25,000. In Scotland the saving would be even greater reducing my cost down to £9,892.
Gift Aid payments could also have a positive effect around the margins of the high income child benefit charge limits or where my adjusted income, pre the Gift Aid payment, took me over the £150,000 limit at which point the tapered pension tax charge starts to come into effect.
I could always look to carry back the Gift Aid relief to the previous tax year as long as the donation has been made and the election to carry back sent in with the original Tax Return by the filing date of the 31st January following the tax year I want to carry back to.
Gifting of assets
I might however be asset rich, cash poor in which case I could consider gifting shares/ land/ buildings to charity instead of cash.
Yes I could sell the asset first and then Gift Aid the cash across but that could trigger off a capital gains tax liability. By going down this route I can avoid the capital gains tax and obtain income tax relief on the value of the asset as a deduction against my taxable income for the year.
If my income for the year was £80,000 and I gifted £20,000 of shares to charity, it would effectively receive £20,000 and I would get tax relief of £8,000 (£8,200 in Scotland) plus I would avoid a capital gains tax liability. A net cost to me of £12,000 (£11800 in Scotland). The charity of course loses out on claiming the tax back.
If my employer, company or personal pension provider runs a Payroll Giving scheme, I can donate straight from my wages or pension. This happens before tax is deducted from my income. Another term for it is Give As You Earn. It’s important to note that National Insurance contributions are calculated on the income prior to the payroll giving being taken off for tax relief purposes
I can choose which charity I want to contribute to. The employer or pension scheme provider deducts the charitable donation from the salary/pension and pays it over to an approved Payroll Giving Agency who, for a small charge, usually no more than 5% of the donation, disseminates the money around the respective charities.
If I was a Scottish resident taxpayer the tax relief at source on the contribution made would range from as low 19% to as high as 46%.
Social Investment relief
Slightly left of field, a lesser known tax relief for charitable concerns is the social investment tax relief which was introduced to encourage investment in social enterprises. I could obtain an income tax credit relief at a rate of 30%.The maximum investment is £1,000,000 which can be carried back to the prior tax year.
I could defer a capital gain if the gain is reinvested into a social investment in similar way to how EIS relief works. As long as the social investment is held for at least 3 years then no capital gains tax is payable on any gains made on the investment itself. Any income derived from the investment will be taxable.
Inheritance Tax break
Instead of leaving everything to the kids on death I could reduce the inheritance tax rate on my Estate from 40% to 36% if 10% of the net (taxable) Estate, the baseline amount, is left to charity.
I am proud to say that ProActivTax is a member of B1G1 which through the accountancy profession, with the help of their client base, try to give a little something back to struggling communities around the globe. We are at present helping a set up called Free to Shine in Cambodia who’s aim is to empower vulnerable young girls through education to avoid being caught up in sex trafficking.
I did notice however, when I last looked, there was only one British based charity registered to receive donations through B1G1. Even if you are not a member of B1G1 and do not wish to be one I would urge you to notify your Charity clients or charities in your local area to apply to be registered on the B1G1 approved list. Worst case scenario is that they receive no additional charitable funds from jumping through the due diligence hoops but if they don’t apply they definitely won’t get any further funds from a Global set up like this.
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