Charitable giving

The most common form of charitable giving is via gift aid.  In effect, for every £100 donated, the charity is able to reclaim £25 from HMRC.  This requires the taxpayer/donor to have paid at least £25 in tax that year.  If the taxpayer has paid insufficient tax, they will become liable to repay the amount to HMRC.  For individuals who make substantial gifts, this can result in a large unexpected tax liability.

Top Tip:

There are a couple of ways around this additional tax burden:

  • The first would be to notify the charity that it cannot reclaim any tax on the gift made.  Gift aid donation forms often require donor’s details (address, and a ticked box to indicate that gift aid is claimed).  The ticked box allows the charity to reclaim additional funds from HMRC.  Whilst it is generally beneficial to tick this box, it does not need to be done, particularly if this results in a personal tax liability;
  • In addition to monetary gifts, it is possible to transfer other assets (quoted shares and securities, and UK land and buildings).  The tax relief works in a different way by reducing the value of the gift (typically the market value at the time of transfer plus incidental costs) from the personal taxable income for the year.  There is no CGT on the transfer to the charity, and the charity itself will likely pay no tax on the sale of the asset.  The gift to charity may also be exempt from Inheritance Tax (IHT).  Therefore, it can prove mutually beneficial to transfer stocks, securities or land to the charity rather than a cash sum.

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