Charitable Giving
Tax relief on gifts to UK charities is available through several avenues, including Gift Aid, Payroll Giving schemes, and gifts of shares or land. At AHACCOUNTANTS, we offer comprehensive advice for individuals in the Nottingham area who are considering making charitable contributions.
If you’re thinking about making a gift to charity, this factsheet outlines how to make tax-effective gifts. You can claim tax relief on gifts to UK charities if you contribute:
- Under Gift Aid
- Through a Payroll Giving scheme run by your employer
- By making a gift of certain shares or land
Location of the Charity
Charitable tax reliefs are applicable to gifts made to UK charities and Community Amateur Sports Clubs (CASCs).
Gift Aid
If you pay tax, Gift Aid is a scheme allowing you to give money to a charity while enabling the charity to reclaim basic rate tax on your gift from HMRC. This increases the value of your donation; for example, a £10 gift becomes worth £12.50 to the charity.
You can contribute any amount, whether large or small, and make gifts regularly or as a one-off.
If you do not pay tax, you should not use Gift Aid.
How Does a Gift Qualify for Gift Aid?
Three main conditions must be met:
- You must make a declaration to the charity indicating that you want your gift to be treated as a Gift Aid donation.
- You should pay at least as much tax as the charities will reclaim on your gifts in the tax year when you make them.
- You should not receive excessive benefits in return for your gift.
Making a Declaration
The declaration allows the charity to reclaim tax from HMRC on your gift.
This declaration can be made in writing or orally; however, charities typically provide a written declaration form.
You do not need to declare every gift; a single declaration can cover multiple gifts to the same charity or CASC for a specified period. This declaration can also backdate claims for up to four years.
Gift Aid Donor Benefit Rules
Donor benefit rules for charities claiming Gift Aid are determined by two percentage thresholds:
- For the first £100 of the donation, the benefit threshold is 25% of the donation amount.
- For larger donations, charities can offer an additional benefit to donors of up to 5% of the donation that exceeds £100.
An annual limit of £2,500 applies to the value of benefits received by a donor as a result of donations to a charity.
You may also pay membership subscriptions to a charity through Gift Aid, provided that any membership benefits you receive do not exceed specific limits. However, free or reduced entry to view property preserved, maintained, or created by a charity in relation to its charitable work can be disregarded.
Fundraising Events
If you raise money that has been collected from others who have not made a declaration to the charity as taxpayers, that payment is not made under Gift Aid, and generally no tax relief is due. However, if you have been sponsored for an event, and each sponsor has signed a Gift Aid declaration, the charity can recover the tax on the amounts covered by those declarations. Charities may provide sponsorship forms for this purpose.
Higher Rate and Additional Rate Taxpayers
If you are a higher or additional rate taxpayer, you can claim tax relief on the difference between the basic rate and your higher/additional rate of tax through your tax return. Relief can be applied for either in the tax year of the payment or, in some cases, you may elect to receive the benefit of the higher/additional rate tax relief in the year prior to the donation.
It’s essential to maintain records of Gift Aid payments for each tax year.
The time limit for claiming tax relief on Gift Aid donations is four years for both the charity and the individual making the gift.
Tainted Donations to Charity
Tax relief is denied on donations where one of the primary purposes is to receive a tax advantage directly or indirectly from the charity, with no monetary limit on the amount of the donation affected by these rules.
Gift Aid Small Donations Scheme (GASDS)
Charities can utilize Charities Online for tax repayment on other income and claims for top-up payments under the Gift Aid Small Donations Scheme (GASDS).
Charities and CASCs can claim a top-up payment on small donations without needing to collect Gift Aid declarations. The GASDS applies to cash donations of £30 or less made by individuals, whether through cash or contactless payment. Charities can typically claim on small donations up to £8,000 per annum, resulting in a repayment of £2,000 for the charity or CASC. The GASDS claim must not exceed ten times the Gift Aid claim.
The GASDS is particularly useful for small cash donations or contactless payments received in collection boxes, bucket collections, and during religious services.
Payroll Giving
A Payroll Giving scheme enables you to make regular contributions to charity directly from your pay, allowing you to obtain tax relief on your gifts. This scheme requires your employer to establish and manage it.
You authorize your employer to deduct your gift from your pay, and every month, your employer pays it to a Payroll Giving agency approved by HMRC, which then distributes the funds to your chosen charities.
Since your employer deducts your gift from your pay or pension before PAYE is calculated, you only pay tax on the remaining balance. This means you receive tax relief immediately at your highest rate. (The amount you pay in national insurance contributions remains unaffected.)
Gifts of Shares or Land
Capital Gains Tax (CGT)
You are exempt from CGT when making a gift of assets, such as land or shares, to charity, even if the asset’s value is greater than when you acquired it.
Income Tax
You may also receive income tax relief for these gifts to charity if they qualify as ‘qualifying investments’.
The relief you can claim will usually equal the market value of the shares, securities, or land, plus any incidental disposal costs, less the value of any consideration or benefits received.
Example:
Alma owns quoted shares with a market value of £10,000 and an original cost of £3,000. As a higher-rate taxpayer, she donates the shares to charity. The charity sells the shares for £10,000 and retains the full proceeds. Alma will not incur a capital gain under CGT and will qualify for 40% income tax relief on the value of her gift, totaling £4,000.
While this relief is attractive, it’s worth comparing this option with the alternative of selling the investment and donating the net proceeds under Gift Aid. If Alma sold the shares, she would realize a capital gain of £7,000, potentially facing no CGT liability due to her unused annual exemption. By donating the proceeds of £10,000 under Gift Aid, the charity can reclaim tax of £2,500, and Alma would receive higher rate relief on the gross gift.
Although Alma receives less tax relief (£4,000 compared to £2,500), the charity ultimately benefits more, receiving a total of £12,500 (£10,000 from Alma and £2,500 from HMRC).
If you would like further advice on charitable giving and tax relief, please contact us.
Qualifying Investments
The following investments qualify for tax relief:
- Shares and securities listed or traded on the UK Stock Exchange, including the Alternative Investment Market
- Shares or securities listed or traded on any overseas recognised stock exchange
- Units in an authorised unit trust (AUT)
- Shares in a UK open-ended investment company (OEIC)
- Holdings in specific foreign collective investment schemes (foreign equivalents of AUTs and OEICs)
- Freehold interests in land
- Leasehold interests in land
Always consult with the charity to confirm it can accept shares or land. For land donations, the charity needs to provide a certificate confirming its acquisition of the land. The charity may also assist you with the transfer process.