Times continue to be tough for charities, but there are ways individuals who are in the position to help can do so
As the pandemic continues to hit the pockets of many in the UK and fundraising activities are put on hold, it is estimated that the charity sector in the UK will have missed out on at least £4.3 billion over the period from late March to the end of June.
Early in the lockdown period we saw huge support for charitable initiatives such as Captain Tom Moore’s walking challenge for the NHS Charities Together. However, as the months have gone on the economic reality of the lockdown has become evident and many have had to tighten their purse strings.
This, in addition to the limitations lockdown has placed on many charities’ ability to fundraise, has severely depleted the income of many of the UK’s charities.
As stated, it is estimated that the charity sector will have missed out on at least £4.3bn over the period from late March to the end of June, and the figure could be higher as restrictions have been re-introduced. For those in the position to give to charities during this time, there are several ways to do so in a tax efficient manner.
- Gift Aid. Registered charities can claim an extra 25% from the government on all donations that are gift-aided. Higher-rate (41%) and additional-rate (46%) taxpayers in Scotland can also claim back the difference between the basic rate of tax and the tax they pay. For example, if an additional-rate taxpayer gives £1,000, the charity can claim an additional £250 from HMRC, and the donor can claim back £325. This means a £1,250 donation has cost £675.
- Gifting Shares. Charities do not pay Capital Gains Tax (CGT), so it can be worth considering gifting shares directly as a smart way to manage your donations. You can donate by using a stock transfer form, and a charity can then sell the shares without incurring a CGT charge. This is particularly beneficial for those holding shares that have dramatically increased in value over time. For example, if you had bought 1,000 shares at the end of 1989, priced at £2.40 and today they are worth £24, your initial investment would be worth ten times what you originally paid. Donating the shares directly to the charity, would mean no CGT would be incurred.
- Leaving money in a will. Lockdown has prompted many people to review their general affairs, including estate planning. For those doing so, leaving money to a charity in a will could be an option to consider. If you do choose to leave 10% or more of your ‘net estate’ (the remaining value of the estate to be distributed once debts are subtracted) to charity, your inheritance tax (IHT) rate is reduced from 40% to 36%. This means that if your net estate is £500,000 and you leave it to your family, they will be left with £300,000 after IHT has been applied. If you instead choose to donate 10% of your net estate to charity, your family will receive £288,000. In other words, your chosen charity will receive £50,000 but the gift will cost you just £12,000.
The government offers these tax facilities to encourage generosity. Choosing to donate to these charities using any of these three methods is not only helping the charitable sector by boosting their income, but also makes sense from a financial planning perspective.
With many more fundraising activities expected to be put on hold or rescheduled, times continue to be tough for charities, but there are ways that individuals who are in the position to help can do so.
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Fiona Gillespie is head of charities for Scotland at Rathbone Investment Management.