Giving to Charity and Saving Tax
It is always great to support a good cause. However, many people don’t realise that when they give to a charity that there may be tax advantages!
Neil Harries, a chartered accountant and probate practitioner, helps us better understand the positive implications of giving to charity when it comes to tax.
What could be better than giving to your favourite charity and being tax efficient in the process? In this article, we explore two ways of giving to charity and some of the tax implications.
1) Charitable donations from income
Making charitable donations from income can have immediate tax benefits for both the donor and the charity. When donations are made under the Gift Aid scheme, charities can recover the basic rate tax, thereby receiving an additional £20 for every £80 donated. As you can imagine this can make an incredible difference to the charity’s work, so when possible you should always seek to make gifts under the scheme.
In addition, if you pay income tax above the basic rate you are usually able to claim further tax relief, typically through making a clam on your own tax return. This reduces your personal tax liability!
Some key points of Gift Aided donations:
Charity’s Tax Claim: For every £80 donated, the charity can claim an extra £20.
Donor’sTax Relief: Additional relief for donors who pay above the basic tax rate.
Tax Paid Requirement: Donors must have paid sufficient tax to cover the charity’s claim.
Further information about gift aid is available here.
Taxpayers who contribute to charities may find that these contributions could prove more advantageous than leaving a legacy through a will. This aspect of tax planning requires careful consideration and often necessitates computation to determine the optimal approach.
2) Leaving a gift to a Charity in you will
Arguably a less well known option is leaving a proportion of your estate to charitable organisations in your will. This can provide lasting support for the Charity’s work and contribute positively to future generations.
After ensuring loved ones are cared for, why not consider allocating a gift in your will to a cause you’re passionate about. This act of generosity often brings personal fulfilment to individuals with the thought that they can make an impactful change even after their death.
What about tax?
Charitable donations made through a will can provide significant Inheritance Tax benefits. Gifts left to registered charities in a person’s will are not subject to Inheritance Tax.
Moreover, legacies amounting to 10% or more of the net value of the estate could lower the Inheritance Tax rate from 40% to 36%. This reduction can lead to a noticeable decrease in the tax burden of larger estates.
Not only can such gestures of goodwill reap tax benefits, but they also hold the potential to increase the residual estate available for non-charitable beneficiaries in some specific circumstances.
In certain scenarios, a posthumous change to the will is permissible through a mechanism commonly referred to as a ‘deed of variation’; potentially optimising the estate for tax and distribution purposes.
Consulting with experts in tax and estate administration is advisable due to the intricate nature of these matters.
Please note: Tax regulations are subject to change, and each individuals specific circumstances can substantially differ, so we always recommend obtaining expert professional advice tailored to your own unique circumstances.
About the author
Neil Harries is a chartered accountant and probate practitioner, with extensive experience and expertise in taxation. He is a director at Cardiff accountants Harries Watkins Jones and partner at probate specialists Harries Watkins Jones Wills & Probate.
Neil advises both charities and individuals in matters relating to inheritance tax, income tax planning, capital gains tax, gift aid and probate. Neil can be contacted by email neil.harries@harrieswatkins.com
