I think it’s fair to say that in these straitened times the thought of giving to charity does not figure high in most people’s list of priorities. The philanthropic urge tends to take a backseat when your concerns centre on mortgage repayments, negative equity and your next pay cheque.
This is reflected in a recent report by the Charity Commission which showed that one in four charities experienced a fall in donations over the last year. And one in 12 of the 500 charities surveyed had been forced to make redundancies.
Many of us may have signed a form to sponsor a colleague’s Three Peaks Challenge, fun run or marathon baked bean bath. But Britain’s record on the charity donations front is not as good as many might think.
According to the Johns Hopkins University in Baltimore, we give about about 0.7 per cent of our GDP to charity compared with almost 1.7 per cent in the United States.
Surprisingly, a study commissioned by the Charities Aid Foundation and the National Council for Voluntary Organisations found that three-fifths of the UK’s most generous donors giving more than £100 per month were people with gross incomes of less than £26,000 a year. Even so, the majority of the population have been prepared to put their hands in their pockets to help out although there were worrying signs that this could be changing even before the global economic crisis. The Home Office Individual Giving Survey 2006/07 reported 54 per cent of the UK population gave to charity compared to 57 per cent the previous year.
With charities looking to keep their income up during the credit crunch, it is worth knowing that there are several tax incentives connected with donating, which can mean more money to help where it’s needed most and can save the donor on their tax bill.
The one most people will be familiar with is Gift Aid. We generally know to tick the box on the sponsorship form but do we know how it works? Basically, it is income tax relief on the donation with the charity benefiting by reclaiming basic rate tax at 20 per cent.
So, if you make a £100 donation, the charity will receive £125. In addition, donations made before April 2011 will receive a further government top-up of three per cent. Gift aid can be used up to the amount of your income and capital gains tax liability in any tax year.
For higher-rate taxpayers there is the added incentive of being able to claim back an additional 18 per cent through their annual tax return. For anyone making charitable donations on a regular basis, the simplest way could be to set up a payroll-giving scheme. Monthly donations are deducted from gross pay so the donor receives tax relief at their highest marginal rate. The employer needs to set up a scheme to allow payroll giving but many larger companies have and will also match personal donations from their own coffers. Payroll giving has been around for more than 20 years in this country but in the UK only two per cent of workers donate through payroll. In America, that number is 35 per cent - worth £2.9 billion a year.
If you want to donate regularly to charity but haven’t decided which to support, a charity account run by the Charity Aid Foundation (CAF) could be the answer. You can build up cash in the fund while the CAF claims the tax relief.
The funds can then be donated to any number of charities as the donor sees fit. This is particularly useful as one gift aid application covers all the chosen charities rather than one for each donation. It means money is available if a specific charity appeal is launched.
Another way of making tax-free donations to charity is through a gift of stocks and shares, land or buildings. This would be free of any capital gains tax and it may also be possible to claim gift aid.
There must be any number of people with small shareholdings from demutualisations or share distributions that are worth so little that they are not worth selling. These can be an excellent source of funds for charities. ShareGift, a charity set up to aid share-giving, will accept donations of any amount, no matter how small.
For those writing a will or worried about inheritance tax, a gift to charity could be the answer. All charitable gifts left as a legacy in a will are free from inheritance tax.
By gifting an amount over and above the nil-rate band to your favourite charity, IHT on the estate can be totally avoided. This is a boon for those who would rather see their inheritance going to their own choice of worthy cause rather than the government, or even the children.
The seriously wealthy could consider setting up a charitable trust either in their lifetime or through their will. This could be used to make charitable donations as the trustees see fit or could act as a charity itself.
For the more financially constrained simply using a charity credit card will generate income for the chosen charity. For every £1 spent a small portion will be donated to the charity.
Organisations as diverse as Oxfam, Amnesty and the Woodland Trust offer cards donating 25p for every £100 spent. Another option worth looking into is The Charity Bank which offers a range of deposit accounts for savers which are then lent on to charitable projects. Savers can donate the interest received to a designated charity or waive it, reducing the rates that the bank charges to its borrowers.
Many of us may be feeling the pinch a little at the present but you can be sure that many charities will be feeling it too. With a little bit of thought and planning we can use the tax system to maximise the amount we are donating while perhaps saving ourselves a little at the same time.
n Trevor Law is a director with Montpelier Group (Europe) Ltd, the privately-owned independent financial advisers located at Barston near Solihull. E mail: TILaw@montpeliergroup.com
