Charitable Giving

UK Charities lose out on hundreds of millions of pounds a year because many donors fail to give in a tax-efficient manner. Even a third of those that give more than £100 a month regular amounts do not take advantage of the tax breaks available for charitable donations.

In part, this is due to relatively levels of recognition for the Gift Aid scheme, introduced by the Government in 2000. This enables charities to reclaim the income tax already paid on the donations they receive as long as the donor can confirm that they have paid enough UK tax to cover the amout reclaimed.

A declaration can be made to cover individual donations,a series of donations, can cover donations made during a specified period or to cover all future donations. Efficient ways to use the Gift Aid scheme include payroll giving, where donations are deducted at source, legacies left in wills which attract relief from inheritance tax and setting up direct debits which are easier for charities to reclaim tax on than ad hoc donations and cash. These methods are particularly important for higher rate taxpayer, whose donations are worth an extra 40% to charities.

The limitation of Gift Aid is that it only applies to income rather than capital and those with greater existing sums of money to donate should consider endowing a personal charitable trust with a percentage of their wealth which provides substantial tax relief. Meanwhile, another tax and time efficient method of giving is to open an account with Charities Aid Foundation (CAF).

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