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tax relief on charitable donations

What’s the connection between giving to charity and saving on taxes? It’s a question many individuals and small and medium enterprises (SMEs) ponder. The answer lies in the various methods available to obtain tax relief on charitable donations.

In this article, we’ll explore these methods, focusing on both individual contributions and the establishment of family charitable trusts for SMEs. Let’s dive into the world of tax cuts and charitable giving.

Tax Advantages of Family Charitable Trust for SMEs

Benefits Beyond Financial Gains

Charitable trusts aren’t just about tax cuts. They’re about social responsibility, family unity, and creating a lasting legacy. When SMEs establish a family charitable trust, they’re making a statement about their values and commitment to the community.

Consolidation of Charitable Efforts

The trust helps unify charitable efforts from various family-run SMEs into a single entity. This consolidation allows for a larger collective impact and streamlines the process of giving. It’s a way to pay less tax while maximising the effect of charitable donations.

Tax-Deductible Contributions and Capital Gains Tax Exemption

Contributions made to the trust by SMEs are typically tax-deductible. This leads to a decrease in overall tax liability, helping businesses get tax relief. Furthermore, by donating appreciated assets to the trust, businesses can gain exemptions from Capital Gains Tax (CGT). This tax planning strategy can be a significant benefit for SMEs.

Individual Tax Relief Methods

Gift Aid

A donation through Gift Aid is treated as having been made net of the basic rate of tax. The charity can reclaim the tax element from HMRC, making every £1 given through Gift Aid worth £1.25 to the charity. To enable this, the donor must complete a Gift Aid declaration, confirming that they are a UK taxpayer.

Payroll Giving

Payroll giving schemes enable employees to make donations to charity as a deduction from their pay. The employer deducts the donation from the employee’s gross pay for PAYE purposes and pays it over to the payroll giving agency. This method allows employees to get tax relief at the source.

Gifts in a Will

Charitable donations in a will can reduce the value of the estate before inheritance tax is calculated. If 10% or more of the estate is left to charity, it can reduce the rate of inheritance tax from 40% to 36%.

Donations of Land, Property, or Shares

Income tax or capital gains tax relief may be available for donations of land, property, or shares to charity. This method allows individuals to deduct the value of the donation from total taxable income for the tax year in which the gift was made.

7 Steps to Setting Up a UK Charity

1. Determine the Purpose and Objectives

Before establishing a charity, it’s essential to define its purpose and objectives. This clarity helps in choosing the legal structure and aligning the charity’s mission.

2. Choose the Legal Structure

Selecting the right legal structure is crucial for the charity’s operation. It defines how the charity will be governed and regulated.

3. Appoint Trustees

Trustees play a vital role in managing the charity. They must be carefully chosen to ensure they align with the charity’s goals and values.

5. Register with the Charity Commission

Charities with an annual income exceeding £5,000 must register with the Charity Commission. This registration ensures compliance with legal requirements.

6. Comply with Tax and Reporting Requirements

Understanding and complying with tax and reporting requirements is essential. It ensures that the charity operates within the legal framework and maintains transparency.

7. Open a Bank Account and Estimate Total Costs

Opening a bank account and estimating total costs are final steps in setting up a charity. These actions help in managing the charity’s finances and planning for the future.

Creating a Legacy and Building a Family Charitable Trust

Lasting Legacy Through Family Charitable Trust

The potential for SMEs to create a lasting legacy by setting up a family charitable trust is immense. This includes donating substantial amounts through the trust to ensure the charity receives every penny, along with a deduction on the business expense.

Donations and Business Expense Deductions

Donating through a family charitable trust allows businesses to deduct these contributions from their taxable income. It’s a way to get tax relief while supporting worthy causes.

Encouragement and Guidance Through the Process

The process of creating a family charitable trust can be complex. Expert guidance from accountants and solicitors can make the journey smoother and more rewarding.

Benefit the Charities You Support, and Your Business

Tax relief on charitable donations is more than just a financial strategy. It’s a way to contribute to society, build a legacy, and unite families and businesses in a common goal. Whether you’re an individual looking to pay less tax or an SME aiming to consolidate charitable efforts, the options are vast and rewarding.

Consult with a tax expert today and explore the possibilities of giving and saving.



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