Conal Gregory: Be tax savvy and you can make that charity donation go further

As personal accountants confirm, make charitable giving part of your strategic tax planning.

It is big business with over 195,200 charities registered in the UK which employ more than one million staff and raise £80bn annually. Only the US is more generous.

As might be expected, the mega rich are leading the way with annual donations each of over £1m, an increase from 292 in 2013 to 298 last year.

This was the highest figure recorded by Coutts who compile a report with the Centre for Philanthropy at the University of Kent since they began the analysis in 2008.

The total donated by this group rose 15 per cent in one year from £1.36bn to £1.56bn. Higher education and foundations were the major beneficiaries, notably Oxford University with 11 gifts.

Individuals singled out in the report include Sir John Hegarty, co-founder of the Bartie Bogle Hegarty advertising agency and easyJet founder Sir Stelios Haji-Ioannou.

Gift aid, which generates almost £1bn a year, allows a charity to reclaim 20 per cent basic rate income tax on any money donated.

Therefore a £100 gift automatically means the charity can secure £125. This calculation may seem odd as one-fifth of £100 is £20. The explanation is that when an employer or other income source pays a gross sum of £125, the 20 per cent applies to that sum.

However, a word of warning is that this arrangement applies to those who annually earn sufficiently to pay income tax and, if this is not the case, to advise the charity.

Conversely, higher and additional or top rate taxpayers can claim the difference between the amount of relief and the basic tax rate.

This means that for a £100 donation, the charity receives £125 and the taxpayer can claim an additional £25 (if on a 40 per cent scale) or £31.25 (on the 45 per cent scale), all of which can be secured by a self-assessment tax return.

To make such a gift tax-efficient, complete a declaration form which your charity should provide. If responding to an appeal online – such as those run by the Disasters Emergency Committee – there is usually a box which can be ticked in place of completing and posting a form.

Do not forget to include all charities on your tax return. Some may slightly surprise, such as English Heritage and The National Trust.

Often cultural sites from art galleries to museums also qualify.

One concession that can be overlooked is that a donation today can enable you to obtain tax relief for last year’s return.

This is an exemption for charitable gifts. Gift Aid has raised £1.3bn since its launch a quarter century ago.

Unfortunately some charities have bombarded individuals with appeals. There was an outcry when 92-year-old Olive Cooke, a regular charity giver and Britain’s longest serving poppy seller, fell to her death in the Avon Gorge earlier this year and it was revealed she had become overwhelmed with begging letters which averaged over 260 a month.

As a direct result, the Fundraising Standards Council said the number of approaches charities can make to individuals should be limited.

Many charities give the sector a bad name by paying fundraisers – known as ‘chuggers’ (charity muggers) – to block your path in shopping areas and try to engage in conversation, often only relenting when a signed form has been completed.

Some charities employ other organisations to market potential donors and it is sensible to enquire as to what proportion will go to the designated charity.

If any relative has set up direct debits in favour of charities, check that they wish to support such bodies and in the amounts regularly taken.

This is a good early use of a power of attorney.

One technique used by charities after a donation has been running for a few years is to write to say that, unless it hears to the contrary, it will increase the regular sum within 30 days.

Such techniques encourage many to set up their own charities and concern the Treasury which loses tax breaks annually worth some £3.5bn.

A good alternative route is to open an account with the Charities Aid Foundation (CAF). It is possible to fund as much as you wish, such as a percentage of net income. In turn, gifts can be made to the charities of your choice, even anonymously if required.

Other than statements, no calls or letters are made by CAF.

Asset gifting is another method. With donations of land, property or shares, the charity benefits and the donor saves paying Capital Gains Tax if the value has increased since the items were acquired.

In the current tax year, an individual can gift such assets worth up to £11,100. Depending on the income tax rate paid, sums over this value will be taxed at up to 28 per cent.

If the asset is of relatively low value – such as a couple of hundred pounds worth of shares – it can be gifted through a special website: sharegift.org.

This was set up to help those with small holdings, perhaps resulting from a windfall in a denationalised company, which the individual cannot be troubled to encash, particularly when the dealing costs are taken into account.

This website has negotiated to waive dealing costs to the benefit of both you and the charity.

Founded in 1996, the organisation has given over £19m from over 5,800 individual gifts which has assisted almost 2,200 charities.

Give As You Earn is little publicised but a worthwhile scheme offered by some employers.

It enables a charitable donation to be deducted from your salary before income tax is taken but after your National Insurance contribution. The result is that the basic rate taxpayer contributes just 80p but the charity of choice receives one pound.

Top rate and higher taxpayers contribute just 55p and 60p respectively.

Donate a legacy which means the charitable gift escapes Inheritance Tax.

If one-tenth of an estate is bequeathed to charity, after the usual exemptions and allowances, the rest of the estate enjoys a reduced IHT rate of 36 per cent, rather than 40 per cent.

The UK’s major donors include Lord Sainsbury and family, who have donated over 40 per cent of their wealth, and such music entertainers and sports personalities as Sir Elton John, Steven Gerrard and Justin Rose.

The pop band One Direction donated almost one per cent of their wealth to charity last year and have donated 50p per ticket on their world tour.

The choices

Gift Aid

Give As You Earn (through employer)

Asset giving

Donate through will

Charities Aid Foundation