Spare more than a mere thought this Christmas and put some of your Christmas spending money to good use.
At Christmas as well as giving presents to friends and family many people's thoughts turn to those less fortunate than themselves and many people make charitable donations at this time of the year.
But if you are going to give to charity you should ensure that you maximise your gift and it is now easy to do this thanks to changes in the tax system.
Giving to a good cause is a more sophisticated process than ever. Although street collection is still the most effective way charities have of raising money from the public, a number of initiatives have made it easier for individuals and businesses to donate regularly and in a manner that is tax-efficient for the recipients.
In 2003, the UK’s top 500 fundraising charities generated a total income of £8.6 billion. Of this, £4.6 billion (53%) was from voluntary sources. According to the National Council for Voluntary Organisations (NCVO), women are more likely to give money to charity than men and the three most popular areas of donation are medical research, children and young people and animals.
These days it's all about tax. In his 2000 Budget, Chancellor of the Exchequer Gordon Brown widened the available tax incentives to encourage people to give more to charities. The reforms made Gift Aid, Payroll Giving and Share Giving much more generous and enabled donors to benefit themselves as well as the charities they support.
Research by the Giving Campaign shows that 80% of charities have converted donors to Gift Aid. However, it has been estimated that if all donors gave money in a tax-effective way (such as by using the Gift Aid scheme), charities would be able to claim an additional £1bn from the Revenue each year. It pays to be aware of the tax breaks on offer.
The main methods of giving money to charity are via Direct Debit, Gift Aid, Payroll Giving and donating shares or land.
Direct Debit
With a Direct Debit (sometimes known as Direct Donation), you simply set up a monthly payment (usually ranging from £2 to £50) to the charity of your choice. Whether you approach the charity directly or sign up by speaking to an agent on the street is up to you. But bear in mind that fundraising street agents (uncharitably labelled 'charity muggers') are paid by the charities to sign up donors, so if you take the direct approach you will effectively be increasing your donation, albeit slightly.
When you set up a Direct Debit with a charity you will be asked to sign a Gift Aid declaration, giving your name and address and stating that you are happy for the charity to claim tax on your gift back from the Inland Revenue. You can also give your consent over the phone or the internet.
Under Gift Aid, the charity you choose receives 28p from the taxman for every £1 you donate - at no extra cost to you. Higher rate taxpayers can claim up to £23 for every £100 donated to charity, by including Gift Aid donations on their Self-Assessment form. Gift Aid can apply to donations of any amount and applies to cash, cheque, postal order, direct debit, standing order, debit or credit card and foreign currency. When you make a Gift Aid declaration you can ask for it to be backdated to cover donations after April 2000 as well as future donations. More information on Gift Aid is available from the HM Revenue and Customs website.
Payroll Giving
Otherwise known as Give As You Earn (GAYE), this form of donation enables you to make charitable donations from your gross salary (before tax has been deducted), giving immediate tax relief on your gift. A £10 donation will only cost a basic rate taxpayer £7.80, a higher rate taxpayer £6. Many employers are encouraging the scheme by matching their employees' donations. You can give regularly in this way by authorising your employer to deduct up a monthly amount, but Payroll Giving can also be applied to one-off donations. All you need to do is choose how much you want to give and to which charity or charities, tell your payroll department and they will set it up. Ask your employer whether they offer a Payroll Giving scheme, and if so, your employer will be able to arrange for your payroll administrator to deduct charitable donations from your gross pay.
Further information on Payroll Giving is available from the Inland Revenuewebsite or the IR helpline on 0845 3020203. Also, see Inland Revenue Leaflet IR65 Giving to Charity by Individuals.
Share Giving
According to the Giving Campaign, there is relatively low awareness of this scheme, despite the fact that it is the most generous tax relief available to donors, combining relief on income and capital gains tax. This tax break was worth £220 million in 2000-01 and £149 million in 2001-02,with the number of donations increasing from 21,517 to 21,868.
Thousands, if not millions, of people have share certificates sitting in drawers gathering dust, usually as the result of a demutualisation windfall. These can be used as a particularly tax-efficient way of giving to charity. Reforms by the Government mean that anyone who give shares to charity can claim back full tax relief against their value. This means that a gift of shares worth £1,000 will only cost a higher rate taxpayer £600, or £780 for lower rate taxpayers. Capital gains tax does not apply.
Tax relief is available to UK taxpayers donating shares and securities listed on the FTSE, AIM and the main foreign stock exchanges. Unit trust and Open-ended Investment Company (OEIC) holdings can also be gifted. You can claim tax relief equal to the market value of the shares on the day you make the gift, together with any associated costs such as brokers' fees.
If you want to donate shares, the easiest way is to contact the charity you wish to help, or the Charities Aid Foundation(www.allaboutgiving.org) or ShareGift (www.shaeregift.org) and ask them to handle the transaction for you. You must keep evidence of the gift and when you made it, so you can claim the tax back. If you wish to handle the transfer yourself, contact the Registrar of the company in which you have shares. He or she will send you a stock transfer form. Again, it is important you keep evidence of the gift for your tax return. If you hold shares in a nominee account, ask your broker to transfer them.
Gifting property
Donors who give property or land to charity can claim full tax relief from income and capital gains tax. As with Share Giving, donors can claim tax relief for the market value of the property. Proof of the transaction must be kept in order to claim tax relief.
Legacies
In your Will you can leave money to a named charity or leave a sum of money to the executors with instructions as to whom the sum is to be distributed. Your solicitor will provide you with information on incorporating a charitable legacy into your will.
Financial products
Increasingly, charities are running credit cards and current accounts, where a small percentage of your balance is donated to the charity each month. Though a good idea in theory, these products seldom have market-leading rates. You may be better shopping around for a better rate of credit card (for example) and giving more money to the same charity.
Tiscali's charity this year has been Nelson Mandela's 46664 project which aims to raise Aids awareness around the world. If you would like to donate to it you can - and you can also buy CDs of the big name concert held earlier this year and for each copy sold a donation will be made to the charity. Explore the 46664 site.
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