Ilm 2 Amal
This excellent article below summarises how to ensure that you can keep giving your sadaqah and zakah (as well as leaving a legacy in your will, which we at 1st Ethical support some of the UK’s biggest charities in doing) in the best possible way and not fall foul of the recent changes in tax-relief, which could well affect you and certainly more acutely adversely affect those charities that we wish to support and see do well, and who are so desperate and dependent upon our generosity.
As charities hit the headlines over the rich donors’ tax relief furore, how can the majority of people with more modest means effectively and efficiently give to charity?
Britain is one of the most generous nations in the world, with a long tradition of helping others. The Charities Aid Foundation’s World Giving Index ranks Britain as the fifth most generous nation to give to charity or do a good turn.
People seem very happy to write a cheque, spend some money in a charity shop or throw a few pounds into a bucket at the railway station. Yet, there are many other ways of giving too.
At the Charities Aid Foundation (CAF) we promote philanthropy large and small. We work with donors and philanthropists to make it as easy as possible for people and businesses to give to charity, and to make sure those gifts have the greatest impact on the good causes they support.
In today’s financially squeezed times, it is more important than ever to support charities, which do such vital work across such a broad spectrum for medical services to education, arts, and helping some of the most vulnerable people in society.
The cap on tax relief announced in the Budget has made giving to charity a big political issue.
At the moment, if you give to charity, the charity can use the Gift Aid scheme to claim back the basic rate tax you have paid on that money. Higher rate taxpayers can claim back the remainder of tax.
The government proposal is to cap the amount of tax relief people can claim on the very biggest donations – imposing a limit on claims of £50,000 or 25% of annual income.
This will not affect the majority of people, and will not affect people who leave legacies to charity, but it will have a significant impact on big donors.
Given that nearly half of all charity donations come from just 7% of donors, there is a lot of concern across charities at the effect of this.
But the government still offers a wide range of tax reliefs on donations to help people with incomes large and small give as much as they can to a huge range of charities.
Charities do an enormous amount of vital work both in the UK and abroad, from medical research and animal welfare to hospices and museums.
Many charities are currently facing a squeeze caused by increasing demand for their services and government funding being cut. This makes income from voluntary donations absolutely vital.
CAF has seen its individual and corporate donors continue to give and to give more, which is fantastic, but we need to keep promoting philanthropy in these financially challenging times.
There are many ways to give to charity, and many ways in which the government provides tax relief to help people make their contribution to charity.
So what are the different ways to give?
If you give money to charity and sign a Gift Aid declaration, the charity can reclaim the basic rate tax you have already paid on that donation.
This means that a £1 donation is worth £1.25 to the charity.
If you are a higher-rate taxpayer and you fill in a self-assessment form, you can also claim back the difference between higher rate and basic rate tax on the value of your donation.
For a 40% rate taxpayer, that means for every £1 they donate, they can claim back 25p in personal relief.
If your employer has a payroll giving scheme, such as CAF’s Give As You Earn, then you can sign up and give directly to nominated charities out of your pay before tax is deducted.
This means you get tax relief at your highest rate of tax, so giving £1 would cost a basic rate taxpayer only 80p.
Not many people are aware of giving in this way. If you own shares, you can sell them and give the proceeds to charity via Gift Aid.
Alternatively you can give your shares directly to a charity but your shares will need to be listed on a recognised stock exchange.
Donors who give shares direct get full tax relief on any capital gains tax. They can also claim income tax relief on the fair market value of the shares.
If you leave a charitable gift in your will, it reduces the inheritance tax that has to be paid on your estate.
From this April, there is also an additional incentive for people to leave at least 10% of their net estate to charity, as they will now pay a reduced rate of inheritance tax on the remainder of the estate.
The rate of inheritance tax for amounts over £325,000 has been cut from 40% to 36% for estates that leave 10% or more to charity.
Giving land and property direct to charity is exempt from capital gains tax and inheritance tax, and income tax relief can be claimed on the value of the gift.
People can sell unwanted clothes, books, CDs and so on through a UK charity shop and then give the proceeds to the charity under Gift Aid.
The charity handles all the paperwork and the cash. Not all charities do this, so do check with your favoured charity shop first.
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