Help a struggling charity in a tax-efficient way this winter

International Volunteer Day falls on 5 December this year. It’s been a challenging eight months for charities, and you might be thinking about volunteering your time or expertise to a cause you care about.

If you’d rather donate to a charity, there are plenty of ways to do that too, and many of them are tax-efficient.

Expert Wealth recently made our second donation of the year to Witney food bank, helping to ensure that children in the Witney area don’t go hungry this festive period.

Family and community are important to us here at Expert Wealth and form an integral part of our core values. In fact, our local food bank is just one of ten good causes we’ve made donations to over the last few years.

Here are five tips to help you support a worthy cause this winter.

But first, a look at how the charity sector has coped during the pandemic.

One in ten charities face bankruptcy before the end of the year

As the country went into lockdown in March this year, the Office for National Statistics (ONS) reported that almost half of Britons were suffering from ‘high’ levels of anxiety.

As lockdown continued, 36% of charities agreed that their services were increasingly in demand (of those, 21% ‘strongly agreed’):

Source: Charities Aid Foundation

At the same time, charity shops shut, and job insecurity left many UK workers worried about their household finances. More than 50% of charities saw a drop in donations:

Source: Charities Aid Foundation

Worthy causes continued to struggle through the summer. In June, charity Pro Bono Economics reported that one in ten charities faced bankruptcy by the end of the year.

More recently, fundraising events like the 2020 Poppy Appeal and the delayed London Marathon – the ‘largest single-day fundraiser in the calendar’ according to the Guardian – have struggled to raise funds while remaining Covid-secure.

The London Marathon raised £66 million in 2019. This year, it managed less than a quarter of that amount.

5 ways you can make tax-efficient charitable donations

If you’d like to donate to a struggling charity this winter, you can do so tax-efficiently. You might also consider making provision for charitable giving in your will.

Understanding tax liabilities and available reliefs can be tricky, so speak to us before donating and we can ensure you do so in a tax-efficient way.

1. Donate through a payroll giving scheme

One of the easiest ways to make a regular donation to charity is through a payroll giving scheme. Your employer takes the donation from your pre-tax earnings and you’ll receive tax relief based on the rate of tax you pay.

A £50 donation would cost you just £40 as a basic-rate taxpayer and only £27.50 if you pay the additional-rate (45%).

Not all employers will offer a payroll giving scheme but check if yours does and you can start making charitable donations this winter.

2. Give through Gift Aid

Gift Aid enables your chosen charity to reclaim the basic rate of tax you paid on your donation (as long as you are a UK taxpayer). So, for every £1 you donate to a charity or community amateur sports club, they receive £1.25.

If you pay the higher- or additional-rate of tax you can claim the difference between the rate you pay and the basic rate. You can do this through your Self-Assessment tax return or by writing directly to HMRC. As a higher-rate taxpayer, you could claim 25p for every £1 you donate.

3. Leave a charitable legacy in your will

You no doubt have a will in place already but be sure to check in it with it regularly. Review it every five years, and after any significant life events, and add a charitable legacy if you’d like to donate money to charity on your death.

There are three main ways to leave a charitable legacy:

  • Pecuniary legacy – The simplest and most common way to donate, you specify an amount of money and a chosen recipient and that amount is paid out on death.
  • Residuary legacy – You leave the whole of your estate (or a percentage of it). The amount is donated once all other bequests have been made and all costs covered.
  • Specific legacy – A specific legacy is a gift of a particular item to your chosen charity. Again, the item must be specified in your will.

The donated amount does not count towards the value of your estate for Inheritance Tax (IHT) purposes.

Also, leave more than 10% of your estate to charity and the rate of IHT could drop from 40% to 36%.

4. Donating (or selling) land, property, or shares during your lifetime

You can donate assets during your lifetime (or sell them for less than market value) and receive Income Tax and Capital Gains Tax (CGT) relief.

Use your Self-Assessment tax return to deduct the value of your donation from your taxable income, or write to HMRC.

You will not pay CGT on land, property, or shares that you donate to charity but be aware there might be tax to pay if you sell the assets for more than they cost you (but less than their market value). Speak to us if you’re unsure.

5. Volunteer

With the coronavirus pandemic still very much a part of our lives and England in a second lockdown, your volunteering options might be smaller this year.

You can volunteer time, as well as expertise, so use the government website as a starting point to find out where you can offer your services locally and if current restrictions make it difficult, why not make it a New Year’s resolution?

Get in touch

At Expert Wealth, we make regular donations to local charities and sports clubs, as well as supporting national charities, such as those fighting Alzheimer’s and prostate cancer.

If you’re looking to donate to charity this winter remember that managing CGT and IHT liabilities can be tricky, so speak to us. We can help you support your chosen cause in the most tax-efficient way possible.

Please get in touch if you have any questions about how to support a worthy cause.

Please note

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.


About the Author

Dom is a qualified and experienced Chartered Financial Planner (CII) and Chartered Wealth Manager CFP (CISI) and a Registered Life Planner (Kinder Institute) with over 30 years experience. His work primarily focuses on retirement income planning, helping clients to maintain financial dignity and independence in retirement. Read more from Dominic...
This article is distributed for educational purposes and should not be considered investment advice or an offer of any product for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. Past performance is not indicative of future results and no representation is made that the stated results will be replicated.
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