Personal Finance – Individual giving

A recent report by the National Council for Voluntary Organisations (NCVO) reveals that the total amount donated to charity in 2004/05 was £8.2bn, with approximately 28 million people giving on a monthly basis. This article will focus on the main tax benefits of charitable giving, for both donors and recipients. Awareness of these benefits can help arts organisations to communicate the financial implications as well as artistic ones that arise when individuals give money to the arts.

Gift aid is one way of saving tax for the donor and increasing the level of donations. For example, a higher rate tax payer donating £100 would reduce his or her personal tax bill by £23; the charity can increase the value of the donation by £28. The main criterion is that (a) the donor must have paid UK tax; (b) benefit limits are not breached; (c) the donation must be a payment of a sum of money. Membership subscriptions can be gift-aided provided that the payments do no more than secure membership of the charity and that the membership does not include a personal right to use the charitys facilities and services. A charity that charges the public for viewing property, such as works of art, may seek Gift Aid donations if certain criteria are met. The donation needs to be at least 10% more than the cost of a single admission or grant unlimited right of admission for at least 12 months. The donation must also be voluntary and visitors can still be admitted if they choose not to pay the donation.

Individual donations can also be made via the Payroll Giving scheme. This entitles the donor to claim tax relief on the donation, and the recipient charity receives regular income. The take-up on this scheme is relatively low: only 2% of the population make use of payroll giving. Government incentives currently exist to encourage employers to set up such schemes and to match donations.

Individuals can also get Income Tax relief on gifts to charity of certain shares, securities and land or buildings. For example, a basic rate tax payer donating £100 of shares could reduce his or her own personal tax bill by £22 £40 for a higher rate tax payer. In certain circumstances it is beneficial for both donor and charity if the donor sells the shares and then gift-aids the proceeds: charity proceeds can be increased by 28% via this route. Gifts to charities are generally exempt from Inheritance Tax, including gifts of qualifying investments.

Mahmood Reza is Proprietor of Pro Active Accounting.
T: 0116 224 7122;
E: [email protected]