The UK has one of the world’s most favourable regimes for tax-efficient charitable giving. As in the United States, extremely generous incentives exist for individuals who support charities like the Academy of Ancient Music. Depending upon your tax position, the cost of making a gift could be under 50% of its value to the AAM
Some donors may find that the value of their gift to the AAM can be boosted still further through matched giving schemes operated by their employers
- Gift Aid
- Gifts of shares
- Payroll giving
- SA Donate
- Charities Aid Foundation
- Matched giving
- US taxpayers
Gifts can be made by any UK taxpayer in a flexible, tax efficient manner under the Gift Aid scheme. The orchestra claims back from HMRC the basic rate tax already paid by the donor, meaning that every pound donated is worth £1.25 to us. Moreover, higher and additional rate taxpayers can then claim personal tax relief on the difference between the basic rate and the applicable rate of income tax through their self assessment tax return or by using a P810 form. This means that if you make a donation of £800, it will be worth £1,000 to the AAM after Gift Aid while costing you only £550 after personal tax relief if you are an additional rate (45%) taxpayer or £600 if you are a higher rate (40%) taxpayer.
Gifts of shares
If you are a higher or additional rate tax payer and you own shares or units of an authorized unit trust which show a capital gain, a gift of shares or units to the AAM could cost you well under 50% of its eventual value to us: the gross value of a gift of shares to the AAM can be offset against your taxable income, and no capital gains tax is payable on those shares.
Your marginal tax rate is 40%. You own shares worth £1,000 with a cost of £500. You have already used up all your capital gains tax allowance this year. If you sold the shares to use the proceeds for your own purpose the amount available after payment of capital gains tax of £140 (28% of £500) would be £860. Instead of spending the money on yourself, you make a gift of these shares to the AAM. The AAM sells the shares and the gift in our hands amounts to £1,000 (less dealing costs). At the end of the tax year you are able to offset the gross sum of £1,000 against your income tax liability and you will receive a rebate of £400. Thus you have made a gift which is worth in the hands of the charity £1,000, but which has cost you only £460.
Your investment manager or broker will be able to advise on the mechanics of making the transfer of shares. A simple method is for you to sell the shares on behalf of the AAM: you write to us saying that you are making the gift, stating the number of shares and the current market value; we reply saying that we accept this gift in the form of shares; we ask you in the letter to sell the shares on our behalf; and we give instructions where the proceeds should be sent. It is important that you are able to provide evidence of the gift of shares for your Tax Office: the Inland Revenue suggests that you might like to confirm the process with your Tax Office (see section 5.3.5 of www.inlandrevenue.gov.uk). Your accountant will be able to advise both on the exact saving that may be made and on the documentation that your tax office will require. We have pro forma letters available to facilitate the process outlined above.
Tax efficient gifts from those who pay tax through PAYE can be made in a straightforward manner through payroll giving schemes. Payroll giving allows you to make donations to charity directly from your pay or pension. The donations are made after national insurance contributions are calculated but before income tax is worked out and deducted. This means that you get tax relief on your donation immediately — and that you only pay tax on what is left.
You arrange a gift of £1000 to the Academy of Ancient Music. If you are a basic rate (20%) taxpayer, you will save £200 in tax you would otherwise have paid (20% of £1000), so the actual cost to you is £800. If you are a higher rate (40%) taxpayer, you will save £400 in tax you would otherwise have paid (40% of £1000), so the actual cost to you is £600. If you are an additional rate (50%) taxpayer, you will save £500 in tax you would otherwise have paid (50% of £1000), so the actual cost to you is £500.
You can support the AAM using payroll giving as long as:
- you are an employee and you get paid weekly or monthly through PAYE or you get a company and/or personal pension and your provider deducts tax through PAYE
- your employer or pension provider needs to run a payroll giving scheme.
You can make a donation by authorising your employer or pension payer to deduct a set amount from your salary or pension income. Your employer or pension payer hands over your gift to a government approved payroll giving agency, which then passes the money on to the AAM. You do not have to tell your employer or pension payer that you are supporting the AAM: instead you simply complete a form for the payroll giving agency to tell them where they should send your donations.
If you complete a self-assessment return and are entitled to a repayment from HMRC you can choose to have all or part of it donated directly to the AAM. You can also ask that the repayment is made as a Gift Aid donation. HMRC will send your refund (plus any Gift Aid repayment where applicable) directly to the AAM by electronic transfer. In order to support the AAM using SA Donate you need to complete the SA100 Charity form alongside your main self assessment return, entering the AAM’s unique reference code, XA Q6 6X G, under question 5.
Charities Aid Foundation
If you wish to make tax-efficient gifts to a number of different charities, you might consider opening an account with the Charities Aid Foundation and making a gift into that account, and thence making donations to charities. The Charities Aid Foundation can be reached on 01732 520000 or enquiries@CAFonline.org.
Many companies operate matched giving schemes. This means that when an employee makes a gift to a registered charity the company will match this donation, in full or in part. Some companies even match at more than 100% of the donation, which will double the value of your donation to the AAM at no cost to you! You can normally find out if your company operates such a scheme by contacting your Human Resources or Personnel Department.
At present, US taxpayers are able to support the Academy of Ancient Music in a tax-efficient manner through CAF America, a 501(c)(3) organisation.
Find out more
To find out more about tax-efficient giving please contact: Ellen Parkes, Development Manager +44 (0) 1223 341097 firstname.lastname@example.org