November 14, 2024
There are some excellent reasons to give away some of your wealth to charity, either during your lifetime or as part of your legacy.
The most obvious, of course, is that you want to do something good with the wealth you’ve accumulated or inherited. But there are also several ways that charitable giving can help to reduce your tax liabilities. So you could call it a win-win.
But how do you decide what to give, when to give it, and which organisations to support?
In this article we talk about the different ways that charitable giving can be tax efficient, and offer some insights from Kent Community Foundation into ways that they help donors to decide where to focus their giving.
How charitable giving can provide tax relief.
The following information is based on information from gov.uk current at 13/11/24. Please be aware that tax rules do change, so it’s a good idea to talk to your IFA about your current tax situation before making any decisions.
This scheme offers tax relief on gifts to UK charities. Payments made to charities are treated as having been made after Income Tax at basic rate has been deducted, and there’s no upper or lower limit on the amount of gift that can quality for Gift Aid, as long as you’ve paid enough tax to cover the amount paid to the charity. UK charities will claim 25% gift aid on top of a client’s donation if the person is eligible. If you pay Income Tax at the higher or additional rate you may be able to claim additional relief (i.e. the difference between the rate you pay and the basic rate on your donation).
Example: You donate £100,000 to charity – they claim Gift Aid to make your donation £125,000. If you pay 40% tax you can personally claim back £25,000.00 (£125,000 x 20%). Your donations will qualify as long as they’re not more than four times what you have paid in tax in that tax year (6 April to 5 April).
It’s important that you have paid enough tax to cover the amount you’ve given, otherwise you may have to pay additional Income Tax.
You can also claim Income Tax relief on gifts of certain qualifying shares and securities to charity, or if you sell the shares or securities to the charity at less than their market value. The tax relief is in addition to the exemption from Capital Gains Tax on this type of gift.
Learn more: HS342 Charitable giving (2024) – GOV.UK (www.gov.uk)
As well as exemption from Capital Gains Tax (CGT), you can claim Income Tax relief on certain gifts of land or buildings to charity, or where you sell or lease a property to a charity at less than its market value. There are a number of rules governing these gifts, to prevent tax avoidance, so if you are considering making a gift of land or property, your IFA will talk you through the rules and make sure your gift is managed properly.
Did you know that, if your estate is likely to incur inheritance tax (IHT) when you die, you can reduce that liability by leaving a gift to a charity in your will?
Gifts to charities in wills are exempt from IHT so, if your estate is over the IHT threshold, leaving a bequest to a charity could help.
The current IHT threshold starts at £325,000. This is known as the nil-rate band (NRB). If you leave your main residence to direct relatives (a child or grandchild, for example) there is an additional allowance known as the residence nil-rate band (RNRB). This is currently £175,000 meaning you could leave up to £500,000 without your estate incurring IHT. In addition, if you are married or in a civil partnership, in most cases you can pass your assets to your surviving partner free of IHT.
But what if the value of your estate exceeds this threshold?
With rising house prices and the NRB having been frozen for several years, more and more people are finding that a proportion of their estate will be subject to IHT at 40% on their death.
If your estate is likely to exceed the threshold, one option for reducing your IHT liability is charitable giving during your lifetime or via your will.
Tax-efficient charitable giving
Your IFA can advise you on your different options, whether you want to give now, or as part of your estate. They’ll help you ensure you’ve included everything in your estate planning and that you’ve set up your donations in the most tax-efficient way.
CHOOSING A CHARITY TO BENEFIT FROM YOUR WEALTH
You might already have a particular charity or cause that you are keen to support. But we’re increasingly approached by clients who want to make a difference in their local community, asking for advice about how to find the right local charities to support to make a real impact where they live.
Talis IFA and Kent Community Foundation (KCF) talk giving
So we spoke to Kent Community Foundation (KCF) who have been finding, funding and supporting some of Kent’s smallest voluntary organisations for over 20 years – matching people who want to help with people who need the help, where even a modest amount of money can make a real impact.
Talis: Many of our clients want to give something back. How can community foundations help?
Kent Community Foundation: We specialise in helping people to give strategically, especially with relatively small grants which have a big impact on local communities. We have a deep understanding and knowledge of charities and community groups within the county, meaning we can connect your clients with causes that perfectly align with their values and passions.
Perhaps they care deeply about supporting those who are elderly and isolated, about employability, or maybe they want to specifically support people living with dementia, or young carers.
Setting up a charitable fund with KCF is an easy solution for people who want to give locally but don’t necessarily know where to start.
Talis: Is there more than one way to give?
Kent Community Foundation: Absolutely. We offer a variety of options, which we talk through with our donors – or fund-holders as we prefer to call them. We take a flexible approach to giving in a way that suits the individual or family, and maximises impact on those they’re looking to support.
Talis: Do funds go towards one particular cause, or many different causes?
Kent Community Foundation: It depends on what the fund-holder wants to achieve, and the funding available. Our team will find, liaise with, and vet charities and community groups and assist our fund-holders in supporting one cause, or many causes. We offer two key ways to give; one is the set-up of a KCF endowment fund where a £100,000 minimum gift is required to set up a named charitable fund in perpetuity with bespoke grant-making. The second is to set up a named flow-through fund where we offer a bespoke grant making service for a minimum donation of £50,000. We also offer other charitable giving options too, including our pooled flow-through funds where donors can pool their contributions through KCF’s priority funding areas, targeting the highest areas of need in Kent.
Talis: We’ve heard of donor-advised funds – is this the same?
Kent Community Foundation: No. What we offer is a different, more bespoke service based on our fund-holder’s charitable objectives.
The difference in what we offer is the relationship between us and the fund-holder. We take time to understand their motivations for giving and what they are passionate about. We help them to set a criteria for their fund and then we present a selection of local organisations that meet their charitable objectives based on applications we receive from hundreds of local charitable groups each year. We talk them through each organisation’s impact in their local community, and the fund-holder has the ultimate say on whether to fund them or not. We are able to do this because we know more about the charitable sector in Kent than anyone else.
Talis: Our IFAs will help our clients make sure they are making tax-efficient decisions about charitable giving, but what about managing the actual process of giving to different organisations? How does that work?
Kent Community Foundation: That’s simple for your clients. We take care of all the administrative and legal side of managing charitable giving. We’ve got over 23 years of experience so we can guide individuals and families who may be unsure about how to make the most of their giving, or how to give. That gives everyone confidence that their donations will be used well, and to greatest effect.
Talis: Is it usually a one-off, or an ongoing relationship?
Kent Community Foundation: Like you at Talis, we take the time to develop relationships and get to know what our fund-holders want to achieve. We often find that after initial grant-making our fund-holders want to explore expanding their giving, as they’ve got so much joy and reassurance from giving through us.
We’d love to help your clients make a lasting impact on the causes they care most about, right here in Kent.
Talis: And what about clients outside Kent?
Kent Community Foundation: We are part of a network of 47 accredited community foundations across the UK. Head to the UK Community Foundations website to find your local community foundation or we would be very pleased to make an introduction.
Learn more about giving through Kent Community Foundation.
If you are considering making a charitable donation, and want to know more about tax-efficient charitable giving, talk to your Talis IFA.
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