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Tax-effective gifts to charity

Gifts to charity can be extremely tax effective, although there are pitfalls to avoid. For instance, gifts to foreign charities will not qualify for tax relief in the UK; far better to give funds to a UK charitable "Friends of" organisation, which supports the overseas charity.

Gifts to charity are usually free of inheritance tax, capital gains tax and stamp duty. Gifts of cash and certain "qualifying investments" such as quoted shares can also give rise to an income tax rebate.

Cash

In the case of cash the charity can reclaim the basic rate tax you have paid. Higher rate taxpayers can themselves recover the difference between the higher rate of tax and the basic rate of tax on the total value of the donation, providing the requirements for "Gift Aid" are met (principally having sufficient taxable UK income, completing a declaration and not receiving any benefit in return for the gift).

Shares

With gifts of quoted shares, the taxpayer gets a tax credit to set against his or her income tax. This can be more tax effective than a cash gift if the shares are also showing a large gain, since you will avoid paying capital gains tax as well.

Other assets

If you are contemplating a gift of unquoted shares, art or other objects then there is currently no income tax deduction available. However, with specialist advice, there may be other ways of maximising the benefit to the charity and/or to the taxpayer.

Gifts by Will

No inheritance tax is paid on gifts to charity under your Will. If you leave at least 10% of your estate to charity on your death, the inheritance tax on your taxable estate will be reduced from a rate of 40% to 36%. However, particularly where large sums are involved, there may be more tax effective ways of benefiting charity than a simple legacy.

US citizens

If you are a US citizen with UK taxable income then you will need to adopt a more sophisticated giving strategy to avoid paying tax in the US on your donations to UK charities.

Please contact Daniel Simon or Angharad Palin for more information about how we can help you.

Additional information