The theme this month is a focus on giving, and how it can actually impact you under various aspects of the law. Our firm is dedicated to making our community and world a better place. We have donated to various charities this year, and recently we got involved with Operation Christmas Child through Samaritan’s Purse.
This organization provides toys, school supplies, personal hygiene items, clothing and other gifts for needy children in Africa. Aside from the obvious benefit to the child and the ‘warm and fuzzy’ feeling a donor receives, there are some ancillary benefits to charitable giving throughout the year.
You will be able to get tax relief for your charitable donation if you do so, through either Gift Aid or straight from your wages or pension, called Payroll Giving.
Gift Aid is when charities and other clubs register with HM Revenue and Customs (HMRC) as part of the Gift Aid scheme. Once they are registered, these charities can claim back the tax that you have already paid on your donation. They can claim back from the government – on your behalf – 25p for every £1 spent. That means your donation has even more power.
If you pay tax at a higher or additional tax rate, you can claim back the difference between the tax you’ve paid on the donation and what the charity got back when you fill in your self-assessment tax return, or you can call HMRC and inform them of your donations. Do note however – if the charity receives more tax than what you’ve actually paid, HMRC may ask you to pay more to cover the difference. You can include all donations from the last 4 years, and they will qualify as long as they are not more than 4 times what you paid in tax that year, whether on income or through capital gains.
Gift Aid will not be eligible to be reclaimed if the donor informs the charity that the donation was made on behalf of someone else, or a company, or was to a family member or friend participating in an event where the charity is paying for their costs or the donation was made in exchange for goods, rights or services.
Payroll Giving is similar. Your employer or pension provider will offer this scheme, and any donations you give will be taken before income tax is taken off, so you are effectively able to make a donation from your income, tax-free. You will still pay National Insurance contributions on the amount you donate, but not income tax. The tax relief you receive will depend on the rate of tax you pay. To donate £1, you pay 80p if you’re a lower rate taxpayer, 60p if you’re at a higher rate, and 55p if you’re an additional rate taxpayer.
Donating Land, Property or Shares
These assets are often quite valuable and you might otherwise be liable for income or capital gains tax if you dispose of it. However, if you donate land, property or shares to a charity, you are entitled to some tax relief. You can pay less income tax in the year if you deduct the value of your donation from your taxable income. Additionally, you will not have to pay any capital gains tax if you donate land, property or shares to charity. You can also sell these items on behalf of a charity if they so request after you offer the gift. You should always keep records of the charity’s request, the gift, and the sale. Without appropriate documentation, you may still be on the hook for Capital Gains tax.
Charitable Gifts in Your Will
Last week, we discussed the possibility of charitable donations either reducing your estate’s inheritance tax rate or reducing the overall value of your estate after giving a gift to charity through a will. (See the article here). The inheritance tax rate will be reduced to 36% (instead of the standard 40%) on some assets if you leave 10% or more of the net value of the estate to a charity in your will. If you have a particularly large estate and are worried about the tax implications for your family, finding a worthy cause to support may help you get the benefit of reducing your heir’s tax burdens and ensuring that your estate goes on to improve the lives of the community you leave behind.
December is always a special time of year to think about the well-being of others – but it is okay to admit that in thinking about others, you are curious as to how your generosity can improve your own life, or that of your family, as well. If you are wondering about how to maximize the benefits of your charitable donations, please get in touch with us for a free initial consultation today.