Meet our Expert
Tony is an accountant who has been involved with the not-for-profit sector for over 15 years. He was previously National Charity Tax Partner with a major firm of accountants and now works as an independent tax consultant, advising charities and donors on tax issues. He also writes and lectures on direct tax issues for charities and is a member of the Charities Tax Group.
“I am a higher tax payer and I want to donate shares to a charity claiming tax relief. For every £100,000, how much will my donation be worth and how much will I receive back through Gift Aid?”
Individuals can obtain tax relief on the value of certain shares given to charity as a deduction against their income for income tax purposes. This is in addition, to the exemption from capital gains tax which is available for a gift or sale at an under-value to a charity.
The amount of tax relief depends on the donor’s taxable income and the amount of the qualifying gift. If the donor’s marginal rate of tax is 40% and he has income of £100,000 taxed at 40% and makes a qualifying gift of £100,000, his tax liability will be reduced by £40,000.
No tax is deducted from the gift and charities cannot reclaim any tax under Gift Aid from HMRC in connection with the gift. The shares can be sold by the charity and the proceeds used for charitable purposes or they can be retained by the charity as an investment. In order to qualify for Gift Aid, the donor would have to sell the shares and donate the proceeds. There could then be capital gains tax to pay on the sale of shares by the donor.
This relief for a gift of shares only applies if the shares are listed on a recognised stock exchange. This includes AIM and overseas stock exchanges. Where the shares are given to a charity, the amount of the relief that can be claimed is the market value of the investments on the day they are given to the charity. There is however anti-avoidance legislation to substitute cost for market value where arrangements have been made to obtain tax relief for an increased amount.
The date on which the gift is made is the day on which the whole of the beneficial ownership of the shares is transferred to the charity. This is important because the shares may not come out of the donor’s name until a later date and the value may have changed in the meantime.
The amount of any incidental costs of making the gift – for example any brokers’ fees can also be claimed.
Any amount of consideration or the value of any benefits, received by the donor or persons connected with the donor, in connection with the gift, must be deducted from the amount of relief. Unlike Gift Aid, benefits reduce the tax relief rather than disqualify the gift altogether if set limits are exceeded.
Anyone planning on claiming this relief should take professional advice to ensure they meet all the conditions set out in the tax legislation. This note covers the main points but should not be relied on in the absence of further advice from a qualified person.