Gifts of assets
- Individuals and companies can claim tax relief when giving certain assets, such as shares and land, to a UK charity.
- Unlike cash donations under gift aid, all the tax relief is claimed by the donor.
For some donors, giving shares allows them to be more generous because of the higher tax relief. For others it allows them to support a particular charity with shares at a time when they could not offer a cash gift. It is also a good option where donors have small shareholdings that would cost more to sell than they are worth.
Individuals and companies can claim tax relief when giving qualifying assets. Qualifying investments include:
- shares and securities listed or dealt in on the UK or another recognised stock exchange;
- units in an authorised unit trust (AUT);
- shares in a UK open-ended investment company (OEIC);
- holdings in certain foreign collective investment schemes; and
- a qualifying interest in land and buildings in the UK.
The amount of tax relief you are eligible for involves two elements: capital gains tax relief and income tax/corporation tax relief.
Capital gains tax relief
Capital gains tax relief occurs if you make an outright gift of assets to a UK charity, or if you sell the asset to the charity for an amount less than you originally paid for it. The disposal is treated as having been made on a no gain, no loss basis. However, if the charity buys the asset for more than you originally paid, then you incur a capital gain based on the amount the charity actually pays you.
Income/corporation tax relief
You may also be entitled to income tax or corporation tax relief if the assets are qualifying investments. Relief is allowable as a deduction against income, on the market value of the qualifying investments at the date of the gift, less any consideration given by the charity, plus any incidental costs of making the gift. The relief on a sale of assets is the difference between the open market value and the price paid by the charity. The relief is reduced if the donor receives any benefit as a result of the disposal.
To give land or property, you must transfer the whole of your interest in the asset to the charity. This means that you cannot give a building to a charity and continue to live in it. Nor can you give land and continue to access that property. Note that a company cannot get relief for a gift of its own shares.
Companies and businesses
Companies may receive tax relief for gifts of items manufactured or sold, or on machinery or plant used, in the course of their trade. To be eligible, the business must be a trading company, a sole trader, or a trading partnership. The tax relief is given on the cost of manufacture/purchase of the items manufactured/sold and on their usual sale price. In the case of machinery or plant used in the course of your trade, treat it as having been disposed of at nil value for capital allowances purposes (rather than at market value, as would otherwise be the case).
Gifts of shares
If you have small shareholdings (at least £500) and want someone to manage your donations you could donate them to a donor-advised fund. For a small fee, they will distribute the proceeds to registered charities chosen by you. Alternatively you could give the shares to Sharegift, a registered charity accepts any number of shares and collect them until there are enough to sell. They make donations to charities that have been suggested by share donors and do not charge for the service.
When giving shares directly, the process varies slightly depending whether shares are held in paper form or in a nominee account, and whether you will be transferring to the charity’s nominee account. Your broker should be able to advise you on the appropriate procedure.
If the charity asks you to sell the shares on their behalf, you must make sure you have written proof (a signed and dated letter of your intentions) that you have given shares and not the proceeds from the sale of the shares. The date of the sale must be later than the date of the gift. Without evidence you may be treated as having made the sale on your own account and will not be eligible for income tax relief.
You are a higher-rate tax payer and give a UK charity shares worth £10,000 that cost you nothing. If you had sold the shares yourself, you would have received £10,000 but paid £1,800 capital gains tax (at 18% assuming no annual exemption), for a net gain of £8,200.
By giving sharers to the charity instead you would receive the following tax reliefs:
Capital gains tax 18% of £10,000 = £1,800
Income tax 40% of £10,000 = £4,000
Total = £5,800
So, in this case, the total saving is worth £5,800 (ignoring broker’s fees). This means that a gift with an after-tax cost to you of £4,200 would be worth £10,000 to the charity, and that is the size of the gift you would be recognised for.
A higher-rate tax payer, you give shares worth £10,000 that cost you £5,000.
You would save capital gains tax on the £5,000 gain – that is, £900 (18% of £5,000). Also, as in Example 1 above, you would benefit by £4,000 income tax relief on the whole value of the gift.
So in this case the total tax relief is £4,900 and the net cost to you of a £10,000 gift is £5,100.
Claiming tax relief
You can only claim income tax relief for the tax year in which you make the gift. If the charity offers a gift in return for your donation (for example, tickets to an event), the total value of the gift would be taken from the value of the donation before working out income tax relief. As with all schemes involving income tax relief, your yearly income tax and capital gains tax must be at least as much as the value of the gift to obtain the full income tax benefit. Every donor’s situation will be different and we strongly recommend that you consult your accountant or financial advisor.
A version of this article, written by Philanthropy UK, was published in a previous edition of A Guide to Giving (2008).