Donations to charity
I was asked recently for advice by a client, a 40% taxpayer. He wanted to make a substantial donation to charity, funded by the sale of an investment property. The property had a market value of £100,000 and the cost was £20,000.
Basically he had two choices : gift cash, or gift the property.
If he sold the property and gifted the funds to charity the position would be:
Basically he had two choices : gift cash, or gift the property.
If he sold the property and gifted the funds to charity the position would be:
- Tax on the disposal £32,000, i.e. 40% x (£100,000 - £20,000). This assumes no taper relief is available
- Net £68,000 available to donate
- A qualifying donation of £87,179 (£68,000 x 100/78)
- Higher rate tax relief £15,692, i.e. £87,179 x 18% (40% - 22%) provided he has sufficient taxable income
- The charity would reclaim the basic rate tax of £19,168 (£87,129 x 22%) from HMRC
If he gave the property instead the position would be:
- Income tax relief of £40,000, i.e. £100,000 x 40%
- Charity receives a property worth £100,000, which it could then sell.
- No CGT charge on the charity
- No CGT charge on my client.
By giving the property itself rather than selling and giving the cash my client was £24,308 better off and the charity £12,871 better off (£100,000 - £87,179).
If taper relief at full rates had been available (and my client had enough income the result would reverse and a sale and cash gift would be better.
This is not easy – but it is always worth checking.
