Most clients visit a financial adviser with the intention of seeing their savings grow, not giving money away. But charitable donations can offer a way to mitigate tax, although are often overlooked.
The government offers various tax breaks as a way to encourage more people to give money to charity. These donations primarily benefit from reliefs to income tax, capital gains tax (CGT), and inheritance tax (IHT).
Neil Jones, technical manager at Canada Life, says, “Charitable giving can impact income, capital gains and inheritance tax in different ways and at all levels of philanthropy. While saving tax may not be at the forefront of people’s minds when giving money to a charity, it is important they are aware of the tax treatment; this could allow them to increase the amount they give to the charity or the amount they can pass on to their heirs.”
Donations to charity are usually thought of as a cash gift to an organisation representing a cause to which the individual often has personal ties. Gifts from the estate do not so readily spring to mind.
There is no tax on donations to a charity or to an HMRC-registered community amateur sports club (CASC), meaning that all money goes directly to the charity. The way this tax relief works depends on the route of the donation.
Direct gifts, donation through a will, straight from wages or pensions, or those from profits made from land, property or shares are the most common routes that contributions can take and still reap the benefits of tax relief.
Advisers can help their clients do good deeds for others while simultaneously managing the tax they pay.
Gift Aid
Donations made during an individual’s lifetime will usually qualify for gift aid. Money given through this route allows the charity to claim an extra 25p for every £1 given and does not incur any extra costs.
Those making the donation must complete a Gift Aid declaration form in order for the charity to claim the extra. Forms are usually provided by the charity, and a separate declaration must be filled out for each charity to which a Gift Aid donation is made.
Ian Dyall, head of estate planning at Towry, says, “Because the client is a taxpayer and relief is claimed, the charity will be able to gross up the money they receive by the basic rate tax paid.”
