Giving tax effectively

In order for your giving to have the most impact, you need to consider the most tax-efficient methods that are appropriate for your circumstances.

Gift aid for individuals

Gift aid was introduced in 1990 as a way for donors who are UK taxpayers to increase the value of the gift the charity receives, and for higher-rate taxpayers to obtain tax relief on donations to charity.

Using gift aid means that the charity can claim the basic rate of income tax that you have paid on the donation (i.e. 20%, or additional 25p for every pound you give) from HM Revenue & Customs (HMRC). You can make payments of any size by cash, cheque, postal order, direct debit, standing order, debit or credit card or even in a foreign currency.

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Many people feel that they might like to be more generous to the charities they support, but want to make sure that they have considered all the likely demands on their resources, and have made appropriate plans for their children, parents (if they are still alive) and other dependants and for their own old age.

Legacy giving costs the donor nothing in their lifetime and yet it can help protect the long-term future of their favourite causes. Legacies should be seen as part of a strategic approach to giving and part of the planning for distributing your assets after you die.

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Payroll giving

Payroll giving is a way of giving money each week or month direct from your pay. It is a tax-efficient way for employees, non-executive directors and those receiving a company pension to give a regular amount to one or more charities, or to make a one-off gift.

The donation is made after your National Insurance contribution is calculated but before Income Tax is worked out and deducted. This means that you receive tax relief immediately on the value of your gift. Another way of looking at it is that money you would have paid in tax goes to your chosen charity.

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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.

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Community Investment Tax Relief

The community investment tax relief (CITR) scheme offers a tax incentive to investors in accredited community development finance institutions (CDFIs). CDFIs lend and invest in deprived areas that cannot access mainstream finance. They provide financial services to enterprises and individuals, with the aim of achieving both financial and social returns.

CITR is run jointly by HM Revenue & Customs (HMRC) and the department for Business Innovation and Skills (BIS). It is available to any individual or company with a UK tax liability investing in an accredited CDFI where the investment is held for at least five years.

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Gift aid for business

Under the gift aid scheme businesses can obtain tax relief when they give money, whether as a one-off or a regular payment. It applies to donations of money of any amount to UK charities. The HM Revenue & Customs (HMRC) website provides details of tax incentives for corporate giving.

Companies can make a charitable donation through Gift Aid simply by giving the full amount to charity and deducting the amount as a ‘charge’ when working out profits for corporation tax purposes. The way you receive tax relief via the Gift Aid Scheme depends on whether the business is a company, a sole trader or a partnership.

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