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    Tax efficient gifting

    31 October 2019

    Andrew Chastney

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    3 minute read

    Do you like the idea of making a positive difference to others while also saving tax?

    Here we share a few ideas about making tax efficient gifts to causes you care passionately about through charitable giving.

    Lifetime Giving

    Successive Governments have sought to encourage giving to charity. We might even go as far as to say that it is one of the few areas of common ground between all the otherwise quarrelsome political parties. What’s more, it is arguably an area where financial planning can be done for the long term with confidence.

    You may be wondering about the broader picture: how generous are we as a nation? It has been estimated that, last year, the British people gave £10.1 billion to charity. Amongst the most popular causes were medical research and hospitals, children and young people, the homeless, faith groups and animal charities (source: Charities Aid Foundation, ‘UK Giving 2019’). The amount that the British donate, in terms of money as well as time volunteering, places us sixth in the Countries of the World Giving Index (source: ibid). We are indeed a kind and generous nation willing and able to help those who are in need.

    However, not everyone is acquainted with the different ways to provide money to charities.

    For large-scale giving there is the possibility of setting up your very own charitable trust which could potentially last forever. You could be a trustee during your lifetime to keep control over how the funds are distributed. If you are keen to support local causes, but not sure how to go about it, try your local community foundation. These foundations can help you to support local causes, keep them accountable, and make the whole process much easier all round. To save you time, you may be able to set up your own charitable fund, with the foundation doing the ongoing paperwork.

    While we are all familiar, or maybe too familiar, with tins rattling in the local High Street, this is not a tax efficient way to give. So, what are the alternatives?

    Gift Aid…

    ...make your money work harder

    Gift Aid is perhaps the best-known way to give tax efficiently. We are often asked to fill in a gift aid declaration. The idea is that the charity reclaims tax relief at basic rate. This increases your gift by 25% at no additional cost to you. If you pay tax at above the basic rate, you can claim tax relief on the excess through your own tax return. It may seem like a small gesture, but it does make a real difference to the charities.

    Give as you Earn… save Income Tax and time

    If you are working, your employer might offer a Give as You Earn scheme, where the value of regular donations is deducted from your gross salary. For example, if you are a higher rate taxpayer, every £100 donation costs you only £60 (£59 in Scotland).

    Give shares… save CGT and Income Tax

    Less well known is how giving investments can make a gift even more tax efficient. Do you have shares that would incur capital gains tax (CGT) if sold? If so, you might like to consider gifting some to your favourite charity rather than giving them a cash donation. Many charities will accept a transfer of shares and, if done in the right way, you can avoid the CGT that might otherwise be payable.

    You should also be able to obtain an Income Tax saving by deducting the value of the shares gifted from your total income. Again, using our example of a higher rate taxpayer, a £10,000 gift of shares could save £4,000 in income tax (£100 more in Scotland).

    So, if you are considering how best to finance a charitable gift, we suggest contacting your planner first to discuss your options.

    Any gift to a registered charity is immediately free of Inheritance Tax (IHT). We can therefore see that gifting can save Income Tax, CGT and IHT. Also, most importantly, you benefit your favourite causes. Not a bad deal is it?

    Give via Your Will and save IHT

    Legacies to charities in Wills are very common although often for relatively small amounts such as £1,000 to the local parish church. A charitable legacy is usually IHT free.

    It gets even better the more you give. If you leave more than 10% of your net estate to charities, the overall IHT rate can be reduced from 40% to only 36%. While the maths can get a bit complex, it is possible for money that would otherwise go to the taxman to be redirected to your favourite causes, leaving your loved ones no worse off. Worth thinking about revising your Will?

    How regular cash flow planning can help decide how much to give

    You might really like the idea of giving to charity, or giving more, although unsure what you can afford to give. This is where cash flow planning can help. 

    The Bottom Line

    The UK now has an incredibly positive tax environment for charitable giving as well as some amazing charities that do meaningful and effective work. Charitable giving almost seems to be a contradiction. Doing good for others and also saving tax. Yes, it really is possible!

    Further reading

    Find out more about charitable gifting and get the latest insights on financial matters in our Resource Centre:

    The UK now has an incredibly positive tax environment for charitable giving as well as some amazing charities that do meaningful and effective work.

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