According to a 2019 Charity Aid Foundation (CAF) report on charitable giving, one in six Brits volunteered for charity last year.
In 2020, the coronavirus pandemic closed charity shops and cut donations among cash-strapped workers. As a result, as many as one in ten charities could face bankruptcy before the end of the year.
Charitable giving is important to us here at Hartsfield. We have recently set up the Sarah Jayne Charitable Trust to provide financial support to charities and good causes within our local communities. Our colleagues also give their time to local projects through our Make a Difference (MAD) days each month.
There are many ways for you to make donations to a cause you care about, and it’s possible to donate tax-efficiently too.
Here’s how you might donate to a charity this winter.
1. Donating during your lifetime
The so-called ‘giving while living movement’ began in America as a way to inspire US billionaires to engage in philanthropic work. Since then, it has grown increasingly popular as a way for us all to give money while we still have a chance to see the benefits of our gift.
There are several ways to give money to charity during your lifetime. Here are three:
- Donate land, property, or shares
Rather than leave a charitable legacy (more on which later), why not donate land, property, or shares to charity during your lifetime? You’ll be able to see how it benefits a cause you care about, and there are tax benefits too.
You can deduct the value of your donation from your total taxable income, meaning you’ll have less Income Tax to pay. Donate land, property, or shares to charity, and it is also likely that you won’t have any Capital Gains Tax (CGT) to pay.
- Donate direct from your earnings
If you are still working, you might decide to donate directly from your monthly pay packet using an employer ‘Give as you Earn’ scheme. It enables you to donate hassle-free from your pre-tax earnings, while you also benefit from tax relief based on the rate of tax you pay.
A £100 donation would cost you £80 as a basic-rate taxpayer, £60 as a higher-rate taxpayer, and £55 as an additional-rate taxpayer.
- Donate through purchases
Donate using Gift Aid and your chosen charity can claim back the basic rate of tax you paid. That means every £1 donation you make is worth £1.25 to your charity or community amateur sports club (CASC).
You’ll usually have to complete a Gift Aid declaration form.
If you are a higher- or additional-rate taxpayer, you can claim the difference between the rate of tax you pay and the basic rate on your donation.
For example, you donate £100 to charity as a higher-rate taxpayer and Gift Aid makes your donation worth £125. The difference between your higher rate tax and the basic rate is 20% (40% minus 20%), so you can claim back 20% of £125, or £25.
Claim via your Self-Assessment tax return.
2. Give on death
There are many benefits to leaving a charitable legacy in your will. You can help a cause you care about and it is tax-efficient too.
Donated amounts fall outside of your estate for Inheritance Tax (IHT) purposes and if you donate more than 10% of your estate, your overall IHT rate could drop from 40% to 36%, lowering the liability for those you leave behind.
All gifts must be specified in your will.
There are three main types of legacy gift:
- Residuary legacy – You leave the whole of your estate (or a percentage of it), once all other bequests have been made and any other costs and debts have been covered.
- Pecuniary legacy – You can gift a specific sum of money to your chosen charity. This is probably the easiest and most common way of donating to charity in a will.
- Specific legacy – You can also choose to gift a particular item to your chosen charity, as long as the item (and your wishes) are clearly stated in your will.
Gifts, and willed amounts, make a huge difference to the charity you support. According to the Telegraph, a third of all work carried out by Cancer Research UK is funded by gifts and wills. Half of the income of the British Heart Foundation’s voluntary income arrives this way too.
Remember, for the 2020/21 tax year, IHT is payable on estates valued at more than £325,000 plus the ‘main residence’ band of £175,000, giving a total allowance of £500,000.
Anything over this amount is liable for tax at 40%. Gift more than 10% of your estate’s net value to charity, though, and that rate drops to 36%.
Charitable gifts and donations aren’t liable for IHT so could be used to lower the value of your estate and lessen the IHT impact for those you leave behind.
Finally, if you’d like to help a charity this winter, you might consider volunteering.
With local restrictions in place, it might not be possible to donate your time as you might usually – fundraising or volunteering in a shop – but there are other ways to volunteer too.
Consider volunteering your expertise and skills for free.
You can find more information on the government’s Volunteer page.
Get in touch
After a difficult year for charities, you might consider ‘giving while living’ or adding a charitable legacy to your will. Not only can that benefit a cause you care about, but it could also be tax-efficient for you if done correctly.
Please get in touch if you have any questions regarding the impact of a charitable donation on your retirement and estate planning. We’d also welcome ideas on charities and projects to support in the future, so let us know the good causes close to your heart.
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.