This week has brought a number of stories about charities ranging from the introduction of new rules for charity fundraisers in order to protect the vulnerable, to HMRC’s call for evidence around the simplification of Gift Aid donor benefit rules. In addition, HMRC has published the results of a survey of wealthy charity donors which attempted to ascertain the motivation behind philanthropists’ gifts. On the basis of this small survey, it would appear that charitable giving is motivated by a number of factors; and although the availability of tax reliefs did not affect the decision to make the gift in the first place, it might affect the amount given.
There are a number of ways to give to charity and to obtain tax relief. For example, gifts under a Will on death are Inheritance tax (IHT) free. An example of such a gift was also provided this week with the news that the Heart of England Forest has been left in the region of £175 million by one generous testator. A further IHT advantage of gifts on death is that, if these amount to at least 10% of the testator’s net chargeable estate, then a reduced rate of IHT of 36% is payable on the estate overall. It is possible to draft such gifts to cater for the changes in the value of an estate that are likely to take place between writing the Will and the testator dying. It is important to note that in assessing whether this relief is applicable, the net chargeable estate is taken into account (ie the estate after deduction of the IHT nil rate band) so the amount to be given to qualify for the reduced relief might not be as high as might be thought initially.
No tax is charged on gifts to charity during your lifetime and higher and additional rate taxpayers can claim income tax relief on the gifts when submitting your Tax Return. HMRC’s survey on charitable giving indicated that many people are unaware that making a gift under the Gift Aid scheme also benefits the charity. This is in fact the case as the charity in question can reclaim the basic rate income tax paid by the donor on the amount of their donation. Payroll charitable donations can also be made.
As well as tax relief for donations, since 6 April 2014, Social investment tax relief has been available. An investment in an eligible social enterprise (which includes charities) enables the investor to deduct 30% of the cost of their investment from their income tax liability for the tax year of the investment or the previous tax year. Capital Gains tax (CGT) relief is also available meaning that a CGT liability arising in that tax year can be deferred if the gain is invested in a qualifying social investment. The liability is deferred until the social investment is sold or redeemed.