The world is changing and the way that Charitable Trusts are funded is no exception. The way a charity can gain income and capital is usually from a range of sources. These might be:
Examples of how the funding from these sources has changed over the years can be found at the National Council for Voluntary Organisations (NCVO) here. The Charity Commission also has a very informative and useful website here.
It is recommended that you keep records of the gifts you make to charity for tax reporting purposes.
In the text below, I have looked at the opportunities available to individuals and businesses to help with the planning of their charitable giving. These are only examples of what could be achieved and you may find that you choose a combination of these in your final strategy.
Gift Aid is a tax system whereby a donation to a charity can be increased in real value to the receiving organisation. A Gift Aid form (or box) is ticked when the donation is made and this allows the charity to claim income tax (at the basic rate of 20%) back on the gift made. As an example, if someone gifts £250.00, the charity (with its tax reclaim) will receive £312.50 with basic rate tax at 20% added back in.
Higher, or additional, rate income tax payers can reclaim (via Self-Assessment) the difference between the basic rate tax of 20% and the higher rate of 40%, or 45% if additional rate applies. As an example, if the individual donates £1,000, the charity would receive £1,250 (if Gift Aid form is completed) and the individual claims £250 (higher rate taxpayer), or £312.50 (additional rate taxpayer).
Some annual allowances are not based on means tests, just on age, irrespective of any need for the money received. Winter Fuel Payment is a good example.
For some, this allowance is vital to their well-being, whilst for others it is a nice-to-have but makes little difference to their standard of living. The current allowance amount is £100-300 (tax year 2022/2023) on a standard basis for those born on or before 26 September 1955. Full details of the scale and eligibility is here.
Some choose to give this allowance away to a charity, which is generous. For those that undertake an Income Tax return each year, they can disclose this gift and get tax relief (if they are higher or additional rate taxpayers) on the contribution made. As an example, for those who pay sufficient higher rate 40% tax, they could gift away £200 (as an example) and save £50.00 from their tax. The charity receiving the money gets £250 and the real cost to the donor is £150.
Most of our clients have made Wills. This is a cornerstone of financial planning with some leaving gifts in their Wills to charity. In some instances, particularly for those who do not have direct descendants, leaving an entire estate to a charity or to various charities is not uncommon. However, for some who have excess income, there is the opportunity to gift money away while they are alive, whilst still having sufficient for their needs, both now and into the longer term, even if changes such as long-term care are required. This opportunity can afford some the real benefit of seeing their money make a difference now, rather than after their death.
One question is whether the charities that are noted in a Will have been researched carefully to ensure that they are associated with causes close to the client's heart, or whether the selection has been less thoroughly planned.
Below, we have considered some of the point to consider when looking at making bequests in your Will.
Using a Will is a popular way of giving money to charitable causes. The gift to a charity falls outside your estate for the purposes of inheritance tax.
There are various advantages to this type of arrangement. The gift from the Will is usually larger than the average day-to-day donations a charity would receive. It potentially saves part of the amount HMRC would receive via Inheritance Tax from an estate that is chargeable.
Finally, and as a change instigated from April 2012, if a minimum 10% of the net estate (after deducting debts, liabilities, reliefs, exemptions and the nil-rate band) is given to a qualifying charity, the tax charge rate (for inheritance tax) to the balance of your estate could fall from 40% to 36%. This can be a very useful way of reducing the overall tax charge position to the estate. Careful financial planning is likely to be needed for this and more information can be viewed at the HMRC website.
If you have gifted funds to a charity in the last 7 years (before your death) this amount is not added back into your estate, as is the case for many other gifts.
We are all living longer which is good news and a testament to the improvements in health and medical science. However, the possible negative side to this longevity is that charities are experiencing a longer wait (sometimes decades) to benefit from bequests in Wills. Also, with the increasing cost of long term care, many estate values have reduced because of this burden.
Many people prefer to gift funds whilst they are alive and I hope some of the ideas in this text will help with your financial planning and charitable giving.
This is certainly an opportunity worth exploring for those individuals who are keen to gift away larger sums, usually during their lifetime. This does take careful planning. We are in contact with many Surrey based organisations who can help with this planning and are able to consider the alternatives available to these philanthropists.
As you can see from the statistics noted in the link to the NCVO website above, donations from business are important. HMRC imposes limits on the tax relief that can be claimed on a donation and these are detailed here.
The simple answer is no! There are very effective ways of gifting away other assets, such as shares, even property, which are of value to a qualifying charity.
There are ways of saving tax, such as Capital Gains Tax, that can be highly effective for the donor and recipient. Some clients and enquirers have accumulated small share holdings from de-mutualisations of Building Societies in years gone by, as examples. They are usually not of significant capital value. Some find them somewhat irritating from an administration perspective. There is an effective process of giving these away to a charity and please take suitable advice on this process.
HMRC has more detail on this type of donation here:
As you would expect, there is always the gift of your time and many charities welcome this as much as funding, preferably both!
No individual advice has been provided during the course of this text. Both Inheritance Tax and making gifts to Charitable Trusts should be planned for carefully and if you would like to receive individual advice tailored for your circumstances, then please contact the team at Chapters Financial Limited on 01483 578800.
Chapters Financial Limited is not responsible for the content of external web-links. Chapters Financial is authorised and regulated by the Financial Conduct Authority.