Giving money to a charity that you care about is a good thing for all concerned because:
- They get a boost to their funds which helps them continue with the good work that they do and
- You get the satisfaction of knowing that you are doing something to make the world a better place.
But besides that, there are many tax benefits to be had from giving to charity, depending on how and when you do it which can be a further bonus to you as an individual or as a business owner.
In our ‘4 Legal and Ethical ways to reduce your tax bill’ series we discussed ‘gift aid’ payments and how these could be used to boost your donation and reduce your tax bill. In the same way a Ltd company can make a charitable donation and use this to reduce their corporation tax bill. Many well-known public figures and companies give millions away each year in this way, and save a massive amount of tax, whilst contributing to a cause that they are passionate about.
In an ideal situation, you would designate a proportion of your income to your donations and set-up monthly direct debits/ automatic payments so that you do it as a matter of routine – saving you time and preventing you spending the money on something else.
Sounds great – what else could I do?
Another way to reduce your tax bill is to give money in your Will to charity.
Will-writing is a crucial step in estate planning if you are to ensure that your money goes to the people that you choose, without your survivors having an administrative nightmare and potentially your children ending up in care. Don’t put it off any more– book your appointment here and get it done simply at a reasonable price, without a lecture or needing to take time off work to go into a solicitor’s office.
Giving money to a charity as part of your Will can be used to reduce the amount of Inheritance Tax (IHT) you pay which as property prices continue to rise can be a real concern for some people.
If you leave 10% of your net estate (the value of your estate after your tax-free allowances) to a Registered Charity or Community Amateur Sports Club, the rate of IHT paid by your estate is reduced to 36% – which is the same as getting a 4% discount.
Whilst this will decrease the overall legacy you will leave to your beneficiaries, the amount you pay to HMRC will be reduced and you will be contributing to a good cause of your choice instead of paying it to the Taxman.
The impact of this can be huge!
For example, if the net value of your estate (after IHT and family home allowances are taken into account) was worth £250,000, the IHT bill would normally be 40% of £250,000 which is £100,000. This leaves your family with £150,000 to be split according to your wishes.
If you give away 10% – £25,000 – to a registered charity, the IHT charge on the remaining estate, now worth only £225,000, would be reduced to £81,000 (36% of £225k), leaving your family with £144,000 following the donation.
This means that by giving £25,000 to charity, your family has only lost £6,000 in inheritance, but because the taxman has taken a smaller cut of your estate you save £19,000 in IHT.
You can leave bequests to Local or National UK Charities– and these can include well-known charities or even places that you may not initially realise qualify to benefit like your local School PTA, church or local sports teams.
If you’d like to chat more about tax allowances, will writing or organising your finances please get in touch
