ABOUT THE AUTHOR: Mike Packham is Head of Private
Clients for Charities Aid Foundation in London
Gifting shares is a tax-efficient way to give, because
it can attract both income tax relief and capital gains tax relief,
yet it is often overlooked as a route to charitable funding. This
year, many UK banks and large plcs will cap the cash remuneration
that their executives receive. In February, Barclays stated that
GBP65,000 was the maximum in cash its bankers could
receive. HSBC also announced
it was not slashing bonuses, but paying anything over GBP50,000 in
shares. Much of the press
around the topic suggests that large bonuses will be awarded in
share capital instead.
So, as cash is being squeezed, this is a timely moment to remind
private clients that gifting shares is a way to support the causes
they care about while making substantial savings to their tax bill
– even more so in light of the recent UK budget announcement, which
could see a cap on the amount of tax relief that major donors can
claim. Many donors who are aware of the advantages see share giving
as a great way to unlock capital.
Private client advisors should remind their clients about these
benefits. For example, for a taxpayer who pays the additional rate
of income tax at 50 per cent and higher rate of capital gains tax
at 28 per cent, giving shares valued at GBP100,000 that originally
cost GBP50,000 could result in an overall tax saving of
GBP64,000.
Therefore, the gift of GBP100,000 to charity would cost the
donor GBP36,000. If the shares originally cost less than GBP50,000
the capital gains tax relief would be higher; the minimum cost to
the donor on this basis could be GBP22,000. Of course, shares have
to be HMRC-recognised, but this covers a wide range of shares and
securities.
Clients who want to give share capital have various options. For
example, a donor could sell shares at less than their market value
to allow the charity to receive them at a discount, and reduce
their taxable income by the donation amount, which is the market
value of the shares, plus any costs of the transfer, less the sale
price paid by the charity. If the donor sells shares for less than
they originally paid, the capital gains tax relief will be treated
as making the transfer on a no gain, no loss basis.
‘Gifting shares is a way for clients to to support the
causes they care about while making tax savings’
Say a donor sells shares valued at GBP100,000 for 50 per cent of
their market value, GBP50,000. The shares originally cost
GBP50,000. There is no capital gains tax, as no profit has been
made on the disposal of the shares. Given that the donor has been
paid GBP50,000 for shares worth GBP100,000, the donor may reduce
their taxable income by GBP50,000, resulting in an income tax
relief worth GBP25,000 for a 50 per cent taxpayer.
The alternative to gifting or selling shares at an undervalue is
to sell the shares and give the proceeds to charity under the Gift
Aid scheme. Capital gains tax will still be payable on any profit
made from the sale, so this option may make more financial sense
when the shares do not stand at much of a gain, but the proceeds
can be donated with the benefit of Gift Aid relief, boosting the
value of the gift to the recipient charity by 25 per cent. The
donor can also claim the difference between the higher or
additional rate tax on the gross donation (the gift plus the Gift
Aid directed to the charity) and the amount claimed by the charity.
So, on a GBP80,000 gift to charity, for example, the charity will
receive an extra GBP20,000 and the additional-rate taxpayer
GBP30,000.
As these examples demonstrate, the tax benefits of giving shares
are compelling. At a recent workshop for donors on tax-efficient
giving one guest summed it up perfectly: ‘The capital gains tax
relief and the income tax relief can mean such a terrific reduction
to your tax bill that in some occasions it would be churlish not to
give your shares away.’