Make marathon donations tax-efficient
The Virgin London Marathon on Sunday will see thousands of runners pound the pavements of London for 26.2 miles with many of them raising money for a good cause.
According to Virgin, runners in last year’s race raised a massive £47.2 million for charitable causes, confirming the London Marathon as the largest annual one-day fundraising event in the world. With a similar total expected from this year’s 36,000 runners, the total raised over 30 years since the first race in 1981 will reach more than £500 million.
If you are running in the marathon or are sponsoring someone who is, it’s worth making sure donations are tax-efficient and have Gift Aid added. Gift Aid means that the HM Revenue & Customs will give an extra 28p to the charity for every £1 donated – as long as the Gift Aid box is ticked on the sponsor form and the sponsor is a UK taxpayer. If you're a higher-rate taxpayer you can also claim the difference between the basic and higher-rates of tax on your donation.
However, the Charities Aid Foundation (CAF) estimates that around £750 million of Gift Aid goes unclaimed each year. If you are raising money online at a website such as JustGiving.com or Virginmoneygiving.com sponsors are automatically prompted to Gift Aid their donations.
Other ways to donate to charity
There are plenty of other ways you can make tax-efficient gifts to charity .
Give As You Earn is a tax-efficient way to make donations direct from your salary. Donations are taken from your pre-tax pay, and benefit from the full income tax-relief. This means that a £10 donation will only cost you £8. If you're a higher-rate tax-payer it will only cost you £6. In addition to this many companies offer to match donations made, meaning your £8 could result in up to £20 going to charity.
You can also give unwanted shares to charity and minimise your tax bill at the same time. If gifted, it is possible to claim full personal tax relief on listed shares, unit trusts, open-ended investment companies, and also relief on capital gains tax. So if you donate £1,000 it could reduce your tax bill by £220, or £500 if you're a higher rate tax payer.
If you’re making a will you can leave a charitable legacy. According to the CAF, legacies were worth £1.8bn to charities last year, but only 14% of wills include a charitable legacy. Gifts to legacies can be made for money and items of value, such as jewellery, artwork or a vehicle. All donations made to charity in your will are exempt from inheritance 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.
Capital gains tax
If you buy an asset – shares, a second home, arts and antiques – and then sell it at a later date and make a profit, that profit could be subject to CGT. You don’t pay CGT on selling your main home (which is why MPs “flipped” theirs so regularly) or any securities sheltered in an ISA. Individuals get an annual CGT allowance (£10,600 in 2010/2011) but if you have substantial assets it’s worth paying an accountant to sort it for you.