Gift Aid can make those charity contributions go a lot further
THE UK has a long and distinguished history of making charitable donations and successive governments have given tax carrots to encourage further generosity.
In the last 12 months, 95 per cent of the population has given to charity, totalling £8.91bn. Gift Aid, the major tax incentive for the sector, was added to 52 per cent of these donations, generating £1.16bn. The scheme has raised over £13bn since it started 27 years ago.
Yet a quarter of the eligible donations were not as effective as they could have been as no Gift Aid was claimed. This meant charities missed out on a potential £560m as they can claim an extra 25p for every one pound donated by an eligible taxpayer.
The basic rate of tax is 20 per cent but the increase to 25 per cent is made by HM Revenue & Customs as it calculates that to give a pound, the taxpayer would need to earn £1.25.
There was a further loss as only 22 per cent of higher rate taxpayers bothered to claim the Gift Aid allowance. Higher rate and additional rate taxpayers can claim a rebate of 20 and 25 per cent respectively. It just requires a simple entry on the annual tax return to reduce the liability. It is also possible to carry the deduction back to the tax year before when your marginal rate may have been higher.
These revealing statistics were released by HMRC last month. Its report blames a lack of opportunity to complete Gift Aid details on donations and a lack of understanding among a significant minority of taxpayers.
Street collections frequently ignore the potential of Gift Aid and yet many donors would complete the few details required if there was a handy paper on a clipboard.
Frequently attractions, museums and theatres allow a charity gift to be added to the ticket cost and this can form part of your annual total for giving.
Items donated to charity shops can also be Gift Aided. Some operate a scheme which informs you of the sum raised from the donated articles. This sum should be noted and entered on your tax return in the same way as a cash gift is treated.
The more astute charity shops have antique dealers and auctioneers to periodically assess books, ceramics and jewellery which have been handed in.
There have been reports of items then fetching fourfigure sums which can greatly increase the declared charitable donation.
To be eligible for Gift Aid, the same amount or more needs to have been paid in income tax or capital gains tax in the same year.
The Government has written to 50,000 charities to promote a 2013 arrangement which enables Gift Aid donations up to £20 to be made without a declaration.
Charities can also benefit on someone’s death. Since April 2012, a lower rate of inheritance tax has been applied when an estate leaves at least 10 per cent of its assets to charity.
In introducing the concession, Chancellor George Osborne said he wished “giving 10 per cent of your legacy to charity (to be) the norm”.
The IHT rate for those who donate a minimum 10 per cent to charity is reduced from 40 to 36 per cent. Such tax relief is now costing HMRC over £830m a year.
Once the change came in, there was a noticeable rise in charitable gifts through wills with Cancer Research UK the largest beneficiary, followed by the lifeboat service, the RNLI, and then the RSPCA, according to analysis by NFP Synergy.
Payroll giving is not as well as known as it could be. Ask your employer if a scheme could be offered where a regular sum is deducted from gross income for a charity. The money is taken before income tax but after national insurance contributions.
This arrangement means a basic rate taxpayer is only charged 80p for each pound donated whilst the cost to higher and top-rate taxpayers falls to 60p and 55p respectively.
With this scheme, there is no need to make a claim for a tax rebate.
Another route is to give away assets from shares and land to property. However much the value has increased since it was acquired, no capital gains tax liability arises. This is a useful way to both boost a charity’s coffers and to reduce personal income tax liability.
Advisers Chase de Vere give the example of shares valued at £25,000 being given to a charity on which there is an administration charge of £200.
This enables the person to deduct £25,200 from their income when calculating income tax. A saving of £11,340 would be created for a 45 per cent taxpayer or £5,040 for a basic rate payer.
If not in this league, consider ShareGift, which was founded in 1996 and has raised over £25m. It allows for shares valued up to £200 to be given.
Use the charity’s website to ensure the dealing fees are waived: share-gift.org. This is particularly appealing for those with perhaps a small number of shares created from denationalisation.
Charity cards can also be considered. A minimum 70p in each pound is raised by Cards for Good Causes, which is a far higher proportion than from retailers.
Over 250 local and national bodies benefit from the charity. Card Aid pledges to give its profit which can amount to 60 per cent of sales.
It is run by the Charities Advisory Trust and sells both online and at occasional shops.
Some individuals are incredibly generous. The highest gift in 2016 was from Lord Sainsbury, former chairman of the supermarket chain, who donated £40.5m. Chemicals giant, Jim Ratcliffe, gave £25m to the London Business School.
Global billionaires have been encouraged by Bill and Melinda Gates and Warren Buffett to sign the Giving Pledge.
This promises that most of their assets will be donated to charity or good causes. Facebook co-founder Mark Zuckerberg and his wife have promised to give 99 per cent of their wealth away. When disasters strike, new charities can suddenly emerge. Check with the Charities Commission that they are genuine.
Since crowdfunding pages are easy to set up, there is a temptation to be defrauded, particularly since a quarter of all charity gifts are now made online. Action Fraud warns to look for fake web addresses and spelling mistakes.
If intending to raise funds by taking part in a sporting event like a marathon, to ensure that money given by friends and work colleagues is as effective as possible, apart from urging that they tick the Gift Aid box, check on the charge made by the intermediary.
With BT MyDonate, practically all the funding will go to the charity but noticeably less with both JustGiving and VirginMoney.
In addition, the latter two charge charities to register and so even less of your donation will actually go to the intended cause.