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Christmas is a time for giving

The bible tells us that Joseph and Mary went to Bethlehem to be registered as part of a census.  Caesar Augustus ordered that everyone be registered so that so he could ensure that he maximised his tax revenues.  This coupled with the gifts of gold, frankincense and myrrh brought by the three wise men means that both giving and tax feature in the story of Christmas.

In our modern world it has become traditional to celebrate this time of year by giving but unfortunately we cannot claim tax relief on those presents which we buy for our nearest and dearest.

There are, however, a number of useful tax reliefs which can be claimed should we decide to extend our generosity to charities which include income tax relief under the gift aid scheme, corporation tax relief for companies gifting to charity and IHT relief, both for the gift itself and a possible reduction to the overall rate of IHT on the rest of the estate.

A recent HMRC report has shown that the gift aid scheme is growing in popularity.  Gift aid works by the donor of the gift making a declaration to the recipient charity confirming that they are a UK tax payer.  The gift is then treated as being made net of basic rate tax, which the charity reclaims from HMRC, and if the individual pays tax at the higher or highest rate they can claim the additional tax relief on their self-assessment tax return.

Care should be taken by those who pay little or no tax to ensure that they do not agree to the charity claiming the basic rate of tax otherwise the donor can end up with a tax charge.

As an alternative to the gift aid scheme, payroll giving, or “give as your earn” is a simple way of donating through the individual’s salary and obtaining higher or additional rate tax relief at the time the gift is made.

No relief is available if the individual receives a benefit in return for their gift unless it is under a special scheme such as gift aid admissions or membership charities.

Charity shops ‘retail gift aid’ scheme means that a donor can turn a gift of old clothes or other items into a cash donation qualifying for gift aid and gifts of larger assets such as land and buildings or shares and securities to charity may also qualify for relief.

Individuals can consider setting up a charitable trust or foundation but the amounts given have to be worth the costs involved.

Where at least 10% of an individual’s estate is left to a qualifying charity on death this reduces the effective rate of Inheritance Tax on the remaining estate from 40% to 36%.  Wills can be written in such a way to ensure that sufficient is given to secure this relief.  In addition, the gifts to charity themselves pass IHT free.

To qualify for tax relief the charity must be registered in either the UK or another EU member state, Norway or Iceland. Community amateur sports clubs registered with HMRC also qualify.

Whilst you are opening your presents on Christmas morning it is worth remembering that there are those in this world less fortunate that ourselves and if you do wish to give to a worthy cause the tax relief is an added bonus.

If you would like to discuss any of this blog content in more detail, please do not hesitate to get in touch.