As the impact of the COVID-19 pandemic reaches into almost every aspect of our lives, the demand on many charity services are seeing an unprecedented rise and funding has never been more important. You may be considering how you can help a cause which is important to you, at this time, and this blog considers how you can donate in ways that are tax efficient to you, and which can benefit your chosen charity also.
One of the lesser known, but highly advantageous, tax reliefs available to individual taxpayers comes in the form of Share Aid.
Many taxpayers currently make donations to charity through the Gift Aid scheme, under which the charity, and the taxpayer if they pay tax above the basic rate, can obtain tax relief through a cash donation made to the charity. However, non and low-income taxpayers, should note that if making a cash donation to charity under the Gift Aid scheme, unless they have paid enough tax at source to frank the Gift Aid donation, an income tax charge will be incurred in their hands.
However, transferring shares to a charity from your own investment portfolio under the Share Aid scheme would provide maximum tax relief to the taxpayer, a potential income stream for the charity and a valuable asset for the charity to either hold for the future or sell, with no tax consequences.
Taxpayers obtain tax relief through Share Aid by the market value of the shares transferred being taken as a straight deduction from the taxpayer’s overall income (in much the same way as the personal allowance). This relief can benefit anyone who has paid any tax on their income; it is not exclusively a benefit to individual’s paying tax above the basic rate.
In contrast, a Gift Aid donation simply extends the taxpayer’s basic rate band, allowing tax which would previously have been taxed at the higher rate, to be taxed at the basic rate.
Advantages of Share Aid to the taxpayer
- Taken as an income deduction – therefore results in much larger repayments of income tax than Gift Aid (particularly if large amount of tax is paid through PAYE)
- Basic rate tax payers as well as higher rate tax payers, can gain from gifting under Share Aid
- A good way of reducing assets within an estate for Inheritance Tax planning
- No Capital Gains Tax on transfer of shares to the Charity
Advantages to the Charity
- Can provide a steady income stream to the charity in the form of dividends
- Potential growth in value of the shares received
- No Capital Gains Tax will be due on the eventual sale of the shares, provided the transaction is carried out by the charity
If you wished to donate shares to a qualifying charity under Share Aid, most stockbrokers will be well versed in carrying out these transactions and should be able to arrange this prior to the end of the tax year.
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