It can pay to be generous with donations
GIVING to charity can be highly tax efficient. Here are the main ways to get the taxman to help your favourite cause.
WORKPLACE GIVING MANY employers provide a Payroll Giving scheme. This allows employees to donate via automatic deductions from their salary.
If their donations are taken from gross salary a £1 donation costs a basic rate taxpayer only 80p, and just 60p for a higher rate taxpayer.
GIFT AID DONATE via gift aid and any sum is boosted by 25 per cent. This is because a charity can reclaim the basic rate of tax, for example 20p on a donation of 80p. Donors must complete a gift aid declaration for each charity they give to. Anyone paying tax at the higher or additional rate gets a personal tax boost as they can claim the difference between their rate of tax and the basic rate on donations.
So if a higher rate taxpayer gives £100 to a charity it claims gift aid to boost the donation to £125. The taxpayer can then claim back £25, which is 20 per cent of £125.
Make the claim via your self assessment tax return or ask the taxman to amend your tax code.
UNWANTED SHARES GIVING shares held in your name to a charity means there is no capital gains tax to pay on profits. You can offset the value of the shares on the day they are donated against your income tax allowance.
If you do not have a charity in
mind you can donate them to Share Gift, which aggregates unwanted shares, sells them, then donates the proceeds to various charities suggested by donors.
THROUGH WILLS LEAVING a cash gift to charity in a will can reduce an inheritance tax bill. You can give either a fixed sum of money or a share of what is left of the estate, once all costs and other legacies are paid out.
If you leave 10 per cent or more of your estate to charity then the inheritance tax rate is reduced. The rate on anything left over the threshold – currently £350,000 for individuals – falls from the usual 40 per cent to 36 per cent.
CHARITY CASHBACK MANY shoppers use cashback websites to benefit from online spending. One option is to divert cashback to a charity. Simply set up an account with a website such as Easyfundraising or Give as you Live and from there select places you shop at. The website will track your spending, diverting cashback to the charity. This usually comes to 1 to 10 per cent of purchases. Easyfundraising says using its service to renew a car insurance policy could see £30 go to charity.
SAVING AND BANKING CHOOSING certain banks and building societies to look after your savings can help good causes. For example, Monmouthshire Building Society makes an annual donation to Wales Air Ambulance equivalent to 1 per cent of your balance in its affinity instant savings account, which pays 0.5 per cent interest.
Elsewhere, Furness and Chorley building societies’ affinity accounts donate the equivalent of 0.5 per cent of savings balances to good causes. Furness gives to the NSPCC while Chorley supports six charities, including North West Air Ambulance and Age UK Lancashire. But rates of interest are poor.