As the year draws to a close, many are thinking about resolutions for the New Year. Too often, resolutions are broken: they frequently focus on personal targets (diet, exercise, giving up smoking, and reducing alcohol intake are all fairly standard), but they also frequently rely on will-power. As soon as the will weakens, the resolution is abandoned. How many people do you know that make a resolution on 1st January and still adhere to it the next 31st December?
Perhaps a better resolution to make this New Year should not be focused on ourselves or on will-power, but instead should be focused on helping others. So we are suggesting that you resolve to be philanthropic in 2016. Not a one month resolution. Not a resolution that will have lapsed by Easter. We are suggesting a year-long resolution to do more for causes or communities that are important to you.
Philanthropy can take on various forms. It can involve volunteering of time or skills, but more often than not it involves making monetary donations. Especially for people with little time to commit, a regular pattern of giving to a favourite charity or charities can be a valuable way to support an important cause.
For many donors, the benefit of their gifts is enhanced by government incentives designed to promote charitable giving.
Making donations under the Gift Aid scheme means that registered charities and community amateur sports clubs (CASCs) can claim from HM Revenue & Customs an extra 25p for every £1 donated. A Gift Aid declaration must be signed for each charity to which donations are made. The declaration encourages donors to consider their own tax position: donors must have paid sufficient income tax or capital gains tax to cover reclaims by charities under the Gift Aid scheme. As well as covering single gifts, Gift Aid declarations can be back-dated to cover the previous four years, and can cover all future donations to the charity named on the form.
Higher and additional rate tax-payers can claim the difference between the higher and additional rate tax paid and the amount of basic rate tax which is refunded to the charity – this is claimed through the self-assessment tax return, but for non-self-assessment taxpayers HMRC can make the necessary adjustment to the taxpayer’s PAYE code.
Payroll Giving Scheme
If your employer, company or personal pension provider operates a payroll giving scheme, then you can donate to registered charities from your salary or pension before tax is deducted. This avoids the need for further tax reclaims to be made. To donate £1, the effective cost to a basic rate taxpayer is 80p, and the cost is 60p and 55p for higher and additional rate taxpayers respectively.
Donations of land and shares
Government incentives also exist to encourage gifts of land and shares to charity. Provided that the qualifying conditions are met, a donation of land or shares to charity does not trigger a charge to capital gains tax, and the value of the gift can be used by the donor as a deduction against that year’s total taxable income. The charity can then use the gifted land or shares for their own charitable purposes or, if appropriate, can sell those items free from capital gains tax in order to generate proceeds to fund their charitable work.
Legacies to charity under your will are free from Inheritance Tax (IHT). Where a donor leaves at least 10% of their estate to charity under their will, the rate of IHT paid on the remainder of the estate is reduced from 40% to 36%. The effect is that almost the entire legacy to charity is funded through the reduction in tax – this represents a notional loss to the Exchequer, but a potentially large benefit for a favoured charity or charities.
New Year resolution
Tax efficient gifts to charity can take many forms and there are various incentives created by the government to encourage charitable giving. Perhaps your New Year’s resolution should be to take up some of those incentives and to be a bit more philanthropic in 2016. No will-power required: just a desire to give a little extra to the causes you care about most.