An excerpt from Marlene Outrim’s book, Cascading Your Wealth: How to Build a Family Wealth Plan for the Next Generation.
If you are looking to cascade your wealth to the next generation, we primarily recommend you work with a professional to put together a tailored Family Wealth Plan. However, in addition to this, there are still further options to consider when planning for passing on your wealth. One of these is charitable donations.
What are the rules?
You can give any amount to charity, either while alive or in your Will. This donation will escape Inheritance Tax (IHT), which means that you score on two points: saving on your tax bill, and contributing positively to a charity or to as many good causes as you wish.
In addition to the more obvious types of charities you may think of, often charitable organisations can take the form of museums, universities, some community amateur sports clubs (CASCs), arts and community theatre clubs, and so on. Moreover, if your church is a registered charity, there is income tax relief for higher-rate taxpayers on any covenants you make to it.
You will need to know the charity’s registered name and number, which you can find by checking the register in the country where you live. For England and Wales, you can find the register here.
You can donate:
- A fixed amount of money
- An item
- What you leave (eg. in your Will) after you have made other gifts
If you wish to give to several charities in your Will, the Charities Aid Foundation (CAF) has a form you can complete with all the details, and they will ensure each charity gets their fair share on your death. Leaving gifts to charities in your Will means you save IHT of 40% on each donation; moreover, you can reduce the IHT rate to 36% if you leave 10% or more of your estate to charity.
Gift Aid
You can claim an extra 25p for every £1 you give by taking advantage of Gift Aid. It will not cost you any extra. To do this, you must give a declaration to each charity to which you want to donate, through the Gift Aid Scheme.
However, you should note:
- You can include all donations from the last four years but, in any tax year, you need to pay enough income or capital gains tax to cover the extra 25% through Gift Aid. In other words, your donations will qualify if they are not more than four times what you paid in tax in that tax year (6 April to 5 April).
- You must tell the charities you support if you have not paid enough tax, or if you stop doing so.
- If you are a higher-rate taxpayer, you can claim the difference between the rate you pay and basic rate on your donation through your self-assessment return, if you complete one, or by informing HMRC. For example, let’s assume you donate £500 to a charity. They claim Gift Aid, which makes your donation £625. You pay 40% tax, so you can claim back £125.
The donation does not need to be cash. It can be land or property. You will get income and capital gains tax relief, although the income tax does not apply to CASCs. If the charity asks you to sell the asset on their behalf, you can still get tax relief on any gains. Be sure to keep records of both the gift and of the charity’s request.
Charities can claim Gift Aid on most donations, but payments do not qualify if they are:
- Made from limited companies
- Made through salary as payroll giving
- A payment for goods or services, or made because a charity or CASC has bought goods and services
- Originally loans, but no longer need to be repaid
- A source of ‘benefit’ to the donor, over a certain limit
- Made up of shares
- Charity cards or vouchers, such as CAF vouchers
- Membership fees to CASCs
- Received before the recipient became a charity or CASC
What next?
If you’d like to read the full book and learn more about how building your Family Wealth Plan can help you effectively cascade your wealth to the next generations, you can purchase a copy here.
To get started on your own Family Wealth Plan, or if you have any questions, get in touch with us directly on theteam@uniqfamilywealth.co.uk or 02920 782330.
Our phone lines are manned 9:00-17:00, Monday-Thursday. Please note we operate a four-day working week.