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 receive¹. HSBC also announced it was not slashing bonuses, but paying anything over GBP50,000 in shares². 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.’