Charity donations do not need to be so taxing

CHARITABLE giving offers tax benefits and it has held up surprisingly well through the pandemic.

The Royal National Lifeboat Institution even claims to have seen a ‘significant’ increase in annual donations, albeit special circumstances apply – a response from generous benefactors outraged at criticism of the life-saving organisation’s willingness to rescue migrants crossing the Channel.

However, for most charities, it seems more a case of treading water.

The Charities Aid Foundation’s annual UK Giving report points to how charities mounted a “tremendous” push to pivot their fundraising at the onset of the crisis, with major virtual and televised fundraising efforts in the first half of 2020, and individuals stepping up as well, notably Captain Tom Moore.

The public had responded generously, with overall donations

along with the average monthly donation both rising, the latter up nearly £10 to £58.10 between March

and April.

Nevertheless, it warns: “Unfortunately, the remainder of 2020 saw lower levels and a subdued festive giving period in November and December.

This could be due to a combination of the economic impact on people’s ability to give and fewer fundraising opportunities overall due to restrictions, but the overall trend continued into 2021.

“The total amount increased in 2020, rising to £11.3 billion from £10.6 billion in 2019, despite a fall in the overall number of donors. Instead, the growth was driven by an increase in the average size of donation, up from £45.69 in 2019 to £53.52 in 2020.

During the first half of 2021 an estimated £4.6 billion was donated (lower than £5.4 billion of giving during the same period in 2020) and the trend towards fewer people giving more seems to have increased further.”

So, well done everyone, but some worrying concerns too.

Donations to charity from individuals are tax-free be that via Gift Aid or straight from your wages or pension through Payroll Giving.

Charities and community amateur sports clubs must register with HM Revenue and Customs to be part of the Gift Aid scheme.

Once registered, they can claim back the tax you have already paid on your donation, an extra 25p for every £1 you give.

Higher rate taxpayers can obtain further relief if using Gift Aid. You donate £100 to charity – they claim Gift Aid to make your donation £125. You pay 40 per cent tax so you can personally get back £25 (£125 x 20 per cent).

For Additional rate taxpayers it is even more. Many people don’t complete self-assessment forms so they need to contact HMRC direct.

In respect of Payroll Giving, you’ll still pay National Insurance contributions on the amount of your

donation, but you won’t pay any Income Tax on it.

Legacies are hugely important for charities.

One way to reduce the amount that the taxman takes from an estate in inheritance tax is to make a donation to charity.

The donation comes off your estate before inheritance tax is calculated.

If the donation is large enough – at least ten per cent of your net estate – the rate at which inheritance tax is levied on the remainder is reduced, from 40 per cent to 36 per cent.

Whether it is worth it or not depends on your outlook. If the aim is to reduce the amount that the taxman gets or make a tax-efficient gift to charity, then yes.

If the beneficiaries want to maximise the amount they get from the estate, then no.

Also worth noting that it’s possible to nominate a charity to receive death benefits from a pension fund. It doesn’t normally change the tax position but it’s another way that we can support charities.