More and more of today’s entrepreneurs and high net worth individuals want to give back to society and are asking tax advisers how best to structure their gifts. Here are some options to help you get more from giving
Direct cash gifts to charity are of course the most simple, and many people do this on a regular basis.
If you cannot find a suitable charity, or want to leave a more lasting legacy, setting up your own charitable trust can be a rewarding option. A charitable trust requires a more hands-on approach, and the trustees are responsible for ensuring that the charity’s financial reporting requirements are met. You do, however, have complete control over how the funds are used, and the charity can also be dedicated to the memory of a loved one.
A community foundation – such as the one detailed in Jimi Heselden: from entrepreneur to philanthropist – can provide a good compromise between these two options. You still have some control over the destination of donations, but not as much of the administration that is involved in running a charitable trust.
All of these options qualify for various tax reliefs.
Tax breaks are generous for cash gifts to charities, whichever of the above routes are used, and enhance the amount that charities can receive while reducing the cost for the donor if they are higher rate taxpayers. For example, after tax relief, a £10,000 amount received by charity would only cost a higher rate taxpayer £6,000. There is some flexibility in when the tax can be reclaimed, too.
Sometimes people prefer to gift an unused asset to charity rather than cash. There is generally no capital gains tax if an asset is gifted to a charity after it has risen in value and also no inheritance tax – the gift is immediately out of your estate. Gifts of certain assets can also give rise to income tax relief.
An alternative to gifting during your lifetime, when assets are often still required, is including gifts in your will. Instead of getting the income tax relief, the gift is exempt from inheritance tax, and if 10% of your estate is gifted to charity, a reduced inheritance tax rate of 36% applies to the balance (usually 40%). In some specific circumstances, it can even be possible to double the tax relief to obtain both income tax and inheritance tax relief.
Charitable donations are supposed to be, and usually are, a good thing to do. However, there has been some bad press recently regarding charities and tax avoidance schemes, but HM Revenue & Customs is clamping down heavily on these. The vast majority of charitable donations are made for genuine charitable purposes.