Don't donate to the taxman
The best way to give to charity is to give tax efficiently. Victoria Bischoff explains six ways you can claim tax relief on your donations…
When disaster struck in Haiti earlier this month, thousands of Britons rushed to do their bit and donate money to the appeal.
This got me thinking. Did these charitable givers know that when you donate your hard earned cash to charity you are often entitled to tax relief?
Worryingly almost one third of Britons are unaware they can give more to charity without it costing more, according to recent research by The Charities Aid Foundation.
Here are six ways you can make sure you, and your chosen charity, benefit as much as possible from your donation.
1. Say YES to Gift Aid
Although we all enjoy the 'feel good factor' we get from dropping a few coins into a charity cash collection box, this is not usually the most tax efficient way to donate money.
This is because it doesn't allow you to take advantage of the tax relief offered by the Gift Aid scheme.
If you're a UK tax payer, using Gift Aid will increase the value of your donation by allowing the charity to claim back the tax you have already paid. This is 20% for basic rate tax payers and 40% for higher tax payers.
For example, if you are a basic rate tax payer and give £10 using Gift Aid, it will be worth £12.50 to the charity. And if you're a higher rate tax payer you can also claim back the difference between the higher rate (40%) and basic rate (20%) for yourself.
What's more, up until April 2011 the government will give an additional 3p for every pound you donate.
It is important to remember that making a Gift Aid donation will not cost you a penny extra. All you have to do is fill in a simple form declaring you pay enough tax to cover what the charity will reclaim from the taxman.
For more information on how to make a donation using Gift Aid check out the Directgov website.
2. Give As You Earn
If you want to continue donating to charity throughout the year, it is a good idea to find out if your employer has a 'Payroll Giving' or 'Give As You Earn' scheme.
The amount of money you choose to give will be deducted from your gross salary (the amount you get paid before any income tax is taken off). This means your charity will benefit from tax relief on your donation immediately, saving them both time and paperwork as they don't have to reclaim any tax.
For example, if you are a basic rate tax payer and donate £10 it will only cost you £8, and if you're a higher tax payer you will only pay £6.
To find out more about schemes such as Pay As You Earn, take a look at the HM Revenue & Customs website.
3. Set up a special Charity bank account
If your employer doesn't run a Pay As You Earn scheme you may want to consider setting up a Charities Aid Foundation charity account.
This allows you to set aside money into a special account (minimum of £10 a month), which you can then donate to a charity of your choice tax-free. You will be given a cheque book and card with which you can use to donate. You can find out more on the Charities Aid Foundation website.
4. Donate tax-free by text
In July 2009, the Mobile Data Association announced charitable donations sent via text message to registered charities will be tax-free.
While in the past this type of scheme was only for big charitable events such as Comic Relief, now mobile phone users can donate up to £10 to charities of all sizes.
In order for the VAT to be waived, you must send your SMS to the charity's Short Code (a five digit numbers starting with the number seven which has set aside for charity donations only).
Right now, for example, you can donate £5 to the Disasters Emergency Committee's Haiti appeal by texting GIVE to 70077 from your UK phone. (You will also pay your standard network charge).
You can find out more about donating money via text message on the Mobile Data Association website.
5. Give away your assets
If you give land, property, quoted shares or other personal assets to a UK charity, or sell them at less than their market value you should be entitled to both income tax relief and capital gains tax relief.
The way you work out what tax relief you are entitled to and how you can claim it depends on what assets you are donating and your own individual circumstances. It is therefore a sensible idea to check out the HM Revenue & Customs website for guidance.
6. Where there's a will…
Any gift you leave behind to a charity in your will is exempt from inheritance tax. This means more of your money will go straight into the hands of the charity you intended it for.
You need to make it clear exactly which charity you want to receive your legacy (gift) and how you want it distributed.
Remember,
when you come to write
your will it's important to seek help and advice to ensure your money goes
where you want it to.
Charity credit cards
Finally, if you're determined to regularly give to charity you may want to consider applying for a charity credit card. These credit cards usually offer a one off donation when you start using your card, and then continue to give a percentage of what you spend to your chosen charity.
For example, The National Trust credit card gives £15 to charity the first time you use your card and 30p for every £100 you spend on your card thereafter. What's more, The National Trust card also offers customers an interest free balance transfer period of 12 months (with a 3% handling fee).
However, it's important you remember to repay your balance within the offer period, or in full each month after the 0% deal expires, or the interest you get charged will far outweigh what the charity receives. (And remember your donation to charity through this type of credit card will not qualify for Gift Aid.)
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