Typically, the last person to come to mind when thinking of generosity is the Taxman, who’s mere mention turns up the nose of most.
But the rich and famous have been using these tactics for years.
We explore the substantial tax savings when giving to charities, and the incentives for you to show your generosity, whilst remaining compliant with HMRC.
Empower Your Philanthropy: Establish Your Charitable Trust
Not everyone is comfortable with the thought of their hard-earned money potentially being mismanaged by large charitable organisations.
For those who resonate with this sentiment, setting up a personal charitable trust offers a solution.
This strategy permits more control over the deployment of funds.
Donors can choose between two main paths: a direct route, wherein donations are made exclusively to registered charities, or a more hands-on route, allowing trustees to support worthwhile causes directly.
While establishing such trusts can sometimes be mired in bureaucratic complexities, seeking professional advice from a renowned organisation like us can streamline the process.
Understanding Tax Incentives for Charity Donations
A few years ago, there was quite a stir in the financial community; relief for charitable donations was under threat.
In the eyes of HMRC, all tax reliefs were viewed as their generous gestures, rather than a genuine recognition of a donor’s net income.
But thanks to vocal feedback from the charitable sector, relief for charity donations remained untouched.
This means, for example, if you have an income of £10 million and you decide to donate the same amount to a notable charity like Cancer Research, you’re effectively exempt from tax for £10 million!
Comprehending Gift Aid
Donating under the Gift Aid scheme offers tax relief that might initially seem convoluted but is remarkably advantageous once understood.
If you were to donate £8,000, the scheme treats it as if you’ve gifted £10,000 and have already deducted a 20% tax.
The beauty of this arrangement is twofold: you receive tax relief at the basic rate, and the charity, due to its tax-exempt status, can reclaim the £2,000 from HMRC.
It’s a win-win for both the donor and the receiver.
Capital Gains Tax (CGT) Relief: An Overview
When considering assets that attract CGT, such as shares and property, gifting to charities works differently than one might anticipate.
Normally, gifts are equated to sales at the current market value.
However, when the recipient is a charity, this ‘gain’ is tax-free.
Furthermore, when coupled with Gift Aid, you not only negate potential taxable gain but also get relief for the donation.
A Closer Look at Inheritance Tax (IHT) Benefits
The world of Inheritance Tax, too, showcases a favourable bias towards charity.
Any donation made to charities during one’s lifetime is entirely exempt from this tax.
This is in contrast to gifts made to individuals, which only achieve exemption status if the donor lives for another seven years post-gift.
Donations to charities bypass this stipulation, rendering them instantly exempt.
Intricacies of the 10% IHT Rule
For those planning their estates, the 10% IHT rule is a notable consideration.
The rule was introduced as an innovative method to encourage legacy donations.
The rule stipulates that if you dedicate at least 10% of your estate to charity, the tax rate applied to the rest of your estate is reduced from the standard 40% down to 36%.
Leverage the Taxman’s Generosity with Our Expertise
The taxman’s unexpected generosity through charitable donations is a compelling opportunity for you and your family to get involved with something larger than yourselves.
By understanding and leveraging these tax incentives, you can magnify the impact of your charitable contributions.
At Tax Expert, we’re uniquely positioned to guide you through the process, ensuring you reap the benefits of this governmental beneficence.
We have successfully set up numerous family charitable trusts, to help local business owners fully embrace their philanthropic side and also take advantage of substantial tax benefits.
Tax Expert helped these people to set up a life-long cause which extends past their lifetime and keeps their family name’s generosity apparent for generations to come.
On top of this, these same clients have taken advantage of the substantial tax benefits afforded by charitable donations, in which Tax Expert are experienced advisors.
Reach out to Tax Expert today to find out how we can help you donate charitably and reap the tax benefits.
You can find out more about Family Charitable Trusts by reading our previous article, and downloading our FREE information booklet today.
Contact us today at 01772 788200 to find out more about how we can help, or WhatsApp us out-of-hours at 07787 010190.
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Kind regards,
Ilyas Patel