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SERVICE CHARITIES
In addition to Service Charities providing help and assistance to those personnel connected with the Armed Forces, they also provide a method of donating which can carry tax advantages for both the donor and the charity.
The warm glow from doing a good deed is not the only benefit of giving to charity. Charitable gifts in the UK also carry potential tax advantages for the donor and can make a significant difference to favourite causes
What is a Charity? A charity will qualify as such under English and Welsh law if its purposes are limited to one or more of the advancement of religion (not restricted to Christianity), the advancement of education, the relief of poverty, and any other purpose beneficial to the community (for example, the environment). A charity must also be for the benefit of the public. Services Charities fall into these categories and they are there for the good and benefit of al Service personnel. Gifts for political purposes are not charitable, although they carry their own tax exemptions.
Tax Benefits? The tax benefits of donations to charity are numerous, covering all the main taxes individuals pay on their UK assets. The benefits are also available to those who are not resident or are resident but not domiciled in the UK but have a liability to UK income or capital gains tax. Although increasing with the value of the gifts, these benefits accrue even to donors of small sums. The main tax advantages to individuals of charitable giving are summarised below.
Income Tax - Under current "Gift Aid" rules, higher rate (currently 40%) taxpayers making charitable gifts obtain substantial income tax relief. When a higher rate taxpayer makes a Gift Aid donation, the charity reclaims the value of the income tax chargeable at the basic rate (currently 22%) from the Inland Revenue. The client obtains higher rate tax relief by having his basic rate tax band extended by the "grossed up" value of the gift. Thus, a gift of £7,800 by a higher rate taxpayer to charity using a Gift Aid declaration is treated as if it were net of income tax at the basic rate. The charity claims an additional £2,200 (i.e. the basic rate income tax on the "gross" figure of £10,000) from the government. The client's basic rate income tax band (currently £1,881 to £29,400) is then extended by this gross figure. If he has income of at least £39,400, he saves £1,800 by paying tax at 22% on £10,000 of income that should have been taxed at 40%. The charity gains £10,000 from a gift costing the donor £6,000.
An important and relatively new relief is that when the client gives listed shares or securities (or units or shares in an authorised unit trust or open-ended investment company) to charity, he may deduct their market value from his income for the year. If he pays tax at the higher rate on income worth at least as much as the gift, this will mean income tax relief of 40% of the gift's total market value. This is in addition to any capital gains tax ("CGT") saving; the joint effect of the two relief's can be exceptionally attractive.
Capital Gains Tax (CGT) - Gifts to charity are not liable to CGT (the top rate of which is 40% for individuals). These gifts are technically treated as disposals for neither gain nor loss, so clients who wish to make lifetime charitable gifts from capital rather than income should use assets showing chargeable gains, not cash or assets standing at a loss. Charities are themselves CGT exempt.
Inheritance Tax (IHT) - Charitable donations are generally exempt from IHT.
Tri Service Charities
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