Five savvy ways to give to charity
Charities have lost out financially in the aftermath of the financial crisis, with charitable giving down 11% on pre-recession levels, according to NCVO research.
Investors certainly failed to back Invest & Give, an investment fund run by John Husselbee of North Investment Partners, which donated 0.6% of the annual management charge to the Prince's Trust; the fund was wound up in August after just a year due to lack of support.
But there are several ways in which philanthropically minded investors can still make gifts to good causes and in some cases benefit from tax relief too.
GIVE SHARES TO CHARITY
If you have unwanted shares or fund holdings, you can give them to your chosen charity and receive income tax relief on their value. This effectively means you can deduct the value of the investments from your total income for the year in which you make the gift.
In addition, gifts of investments to charity are treated neither as a gain nor a loss, so there's no capital gains to pay.
If you want to claim tax relief, you'll need evidence of your donation for HM Revenue & Customs. To claim from HMRC you can complete a self-assessment form, or if you pay tax through PAYE write to your tax office to get your tax code adjusted.
Many people have small shareholdings that are effectively useless because they would cost more to sell than they're worth.
One option is to donate the shares, no matter how few, to the share donation charity ShareGift. They will be aggregated with those of other donors and sold, and the proceeds passed on to a range of UK charities.
Donors are welcome to suggest charities for nomination. Again, if you're a UK taxpayer you can claim income tax relief on their value. More information can be found at www.sharegift.org.
CLUBFINANCE CHARITABLE GIVING SCHEME
Discount broker Clubfinance (www.clubfinance.co.uk) rebates to its clients 75% of all annual trail commission (typically 0.5%) it receives on funds held in its accounts.
Under the scheme, individuals who invest through Clubfinance (or switch existing funds from another broker) can opt to channel that money into a charity instead of their own coffers.
Clubfinance adds another 2.5% to the gift, so that, in effect, 77.5p out of every £1 of trail commission goes to charity.
Director Philip Rhoden says: "This means that on a £30,000 portfolio, more than £100 would go to charity each year."
The Clubfinance scheme supports three major UK charities – Marie Curie Cancer Care, Action for Children and the PDSA – and scheme members can choose to back any or all of them.
Unfortunately, says Rhoden, HMRC has not yet agreed to allow these gifts to qualify for Gift Aid (because commercial rebates are not themselves taxable).
The best-known charitable bonds are immunisation bonds, backed by various governments and used to fund immunisation programmes in some of the world's poorest regions.
Currently, none of these are on offer in the UK, but the East London bond, which channels funds into some of the most deprived areas of the UK, is a variation on the theme. Pledges are currently being sought for a second issue.
Charitable bonds are five-year, fixed-term investments. Your money is repaid in full at the end of the term, but the interest you might have earned in a bank account or other investment is, in effect, given to charity.
On an investment of £1,000 into the East London bond, for example, around £200 goes straight to two East London community-oriented charities, while the rest is loaned at a commercial rate of interest to a social housing provider in the area.
Again, there is no Gift Aid available to investors because the interest accumulating on their investment is already exempt from tax. More details at www.eastlondonbond.org.
One of the easiest ways to support your favourite charities is with a legacy from your estate when you die. You can nominate the causes to be supported or make a gift to the Charities Aid Foundation (www.cafonline.org) in your will. Money given to charity on your death is exempt from inheritance tax.
This article was originally published in Money Observer - Moneywise's sister publication - in November 2010
Used by an employer or pension provider to calculate the amount of tax to deduct from pay or pension. A tax code is usually made up of several numbers followed by a letter. If you replace the letter in your tax code with ‘9’ you will get the total amount of income you can earn in a year before paying tax, for example 747L would mean a person could earn up to £7,479 before paying tax. The wrong tax code could mean a person ends up paying too much or too little tax.
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
Annual management charge
If you put money in an investment or pension fund, you’ll not only pay a fee when you initially invest (see Allocation Rate) but also a fee every year based on a percentage of the money the fund manages on your behalf. Known as the AMC, the actual percentage varies according to the particular fund, but the industry average for active managed funds is 1.5%.