Making the topic of tax a little less daunting
We work with professional advisors across Suffolk to support their clients to explore their philanthropic giving options and how they can have the greatest impact with their giving. Whilst we are well placed to advise on philanthropy and support local grassroot communities, professional advisors are the experts to advise people and businesses to ensure their giving is effective both now and in the future. We have some excellent professional advisors in this county who can make topics such as tax a little less daunting and complex!
We are delighted to partner with Jodie Pheby, Senior Tax Manager at Whitings LLP, Chartered Accountants on this article. We asked Jodie to write about tax implications and how to enhance your charitable giving. Jodie also highlights the importance of bespoke advice, and we could not agree more. A professional advisor’s expertise, together with the Foundation’s deep knowledge of local need, provides wonderful opportunities for those who care about Suffolk to realise their charitable wishes.
Jodie tells us:
Many people choose to donate to charity for a range of reasons, often influenced by personal experiences or the impact of someone they know. While tax benefits are rarely the primary motivation, there are several tax reliefs and considerations to keep in mind. Below, I’ve highlighted some of these key aspects.
Gifts of Assets to Charity – What are the Tax Implications?
Gifts made to qualifying charities during your lifetime are immediately exempt from Inheritance Tax (IHT) and the usual 7-year survival clock for IHT purposes does not apply. This means that gifts to charity reduce the size of your estate straight away for IHT purposes.
Are you thinking about making a non-cash gift? Donating certain assets, such as listed shares, securities, or UK property, can offer significant other tax advantages. Not only can you receive income tax relief on the value of the gift, but you may also avoid paying capital gains tax on any increase in the asset’s value.
This can be particularly beneficial for higher-rate taxpayers, who can reduce their income tax liability by up to 45% of the asset’s value.
Gift Aid: Boosting your Donations
Gift Aid is one of the easiest and most popular ways to enhance your charitable giving. If you are a UK taxpayer, Gift Aid allows charities to reclaim 25p for every £1 you donate, at no extra cost to you. For example, a £10,000 donation can be increased to £12,500 with added Gift Aid, provided you have paid enough tax to cover the amount reclaimed.
Higher and additional rate taxpayers can benefit further. If you are usually taxed at 40%, a £10,000 donation effectively costs you £7,500, as you can reclaim £2,500 through yourself assessment tax return. At the 45% rate, the net cost is reduced further to £6,875. If your taxable income is between £100,000 and £125,140 the tax savings can be up to 60%.
Tax relief on a cash donation to charity through the Gift Aid scheme can also be carried back to the previous tax year, offering a valuable tax planning opportunity, particularly where income levels have fluctuated substantially between tax years. To apply the tax relief to the earlier year, the donation must be made before the tax return for the prior year is filed, and the return must be submitted by the 31st January deadline. It is important to carefully consider the timing of the donation, and tax advice should be sought prior to making the gift.
Please note that, as of April 2024, taxpayers will not be eligible for UK tax relief on donations to EU or EEA charities.
Leaving a Gift in your Will
IHT is currently charged at a single rate of 40% on the net taxable value of an estate, over and above the available nil rate band(s).
As an incentive to encourage charitable gifts in Wills, where 10% or more of your net estate is left to charity, the rate of IHT is reduced from 40% to 36%.
The big question many people ask is: is it worth making a 10% gift to charity purely for tax reasons? As is often the case with tax matters, the answer is, “It depends!”. However, if you are already planning to leave money to charity, then the answer can often be a yes.
A key aspect to remember is that the tipping point comes at 4% of your estate. This means that if you have already decided to leave 4% or more of your estate to charity, then increasing this to 10% would not affect what your beneficiaries receive. The tax relief effectively boosts the value of the donation to the charity without costing the beneficiaries anything, owing to the reduction in the rate of IHT. This not only supports the charities that matter to you, but also ensures that more of your estate goes to your loved ones.
Charitable Gifts in your Will can make a significant difference to the causes that you care about. However, they can also have a considerable impact on the beneficiaries of your estate, therefore it is best to take legal advice on how best to structure these gifts in your Will.
What if you are receiving an inheritance from someone who has already died? Did you know that within two years of a person’s death, you can make a Deed of Variation, which can be used to maximise the donations to charity and ensure the structure is tax efficient. Since Deeds of Variation can be quite complex, we strongly recommend that you seek legal advice to ensure the process is handled correctly.
How can Whitings help?
Whitings LLP can advise you on the tax implications of any gift you are considering. Please email [email protected] to explore how we can help you or visit www.whitingsllp.co.uk
How can Suffolk Community Foundation work with you?
We encourage the opportunity to talk with you or your professional adviser to discuss the benefits of working with us. If you are looking at your own charitable giving options or a professional adviser helping clients on the topic of giving to charity then please contact our Philanthropy Manager, Fran Wright at [email protected] or 01473 944732. Fran joined Suffolk Community Foundation last November and has over 16 years’ experience in charitable giving.