How to boost your charity donations
To really help good causes, make sure you give money in a tax-efficient way
Saturday 17 November 2007
The BBC's Children in Need fundraising campaign, which came to its annual climax with an evening of special TV programmes and events yesterday, once again raised in excess of £30m this year. Like many regular fundraising events, most of the money was pledged in the month leading up to the big day, with the charity receiving very few donations in the other 11 months of the year.
Although these events are crucial for charities – and often encourage people to dip into their pockets when they otherwise may have not – fundraisers are always keen to persuade donors to make payments on a regular basis, as all charities need money to cover their overheads all year round. The good news is that if you're interested in becoming a regular donor, there are now a multitude of ways to give money – and, if you are careful to take advantage of all the tax breaks, you can ensure that charities get even more out of every pound you give.
One of the easiest and most efficient ways to donate on a regular basis is by making a donation directly from your salary. Ask your department if they are signed up to a "payroll-giving" scheme – and if they are, you can ask to have a donation taken out of your salary, before tax, every month. Vicki Pulman of the Charities Aid Foundation (CAF) says that if you are a lower-rate taxpayer, the cost of donating £10 to charity would be just £7.80 out of your net salary – or just £6 if you're a higher-rate taxpayer.
If your employer doesn't offer a payroll-giving scheme, you may want to set up a direct debit, but make sure that the charity is claiming "gift aid" on your donation. Gift aid is simply a way of the charity claiming back the tax relief that you could have got by donating directly from your gross salary – and can be claimed on any donation, whether it is a monthly direct debit or a one-off pledge. So if you donate £100, the charity will receive an extra £28 if it claims the gift aid. Furthermore, if you're a higher-rate tax payer, you can also claim back an additional 18 per cent tax relief when you file your tax return – which means that the cost of donating the £100 will work out at just £77.
If you are setting up a direct debit, it's often better to go straight to the charity – or set up a CAF account (see below) – rather than signing up with one of their representatives on the street. These direct marketing companies often end up receiving the entire first year of donations for signing you up.
One way of ensuring that charities will get every penny of tax relief they are owed is to set up a charity account – such as the one offered by CAF. These accounts automatically claim gift aid, from the HM Revenue department, on all money that is paid into your account. You can then choose to make donations to multiple charities, knowing that they are getting the maximum benefit.
"There are plenty of charities in the UK which don't reclaim tax on donations," says Pulman. "CAF accounts guarantee that every penny you give is tax-efficient."
If you're looking to make larger donations over the longer term, another option is to set up your own trust. This allows you to put money aside for charitable donations, which attracts all the tax advantages, but gives you the option of keeping the money invested, and passing it on to relatives when you die. Organisations such as CAF can provide advice and guidance on trusts (www.cafonline.org).
Another way of making an ongoing contribution to charity is to open a savings account with the Charity Bank (www.charitybank.org), which pays you a low rate of interest – currently 2 per cent gross – on your deposits, while using your money to lend to charities. "We ask investors to give up some of their investment return in exchange for a social return – by giving to charity," says Malcolm Hayday, the bank's chief executive. "Instead of putting your money into a bank and giving away the interest, our accounts allow you to ensure all your money is working towards helping charities."
There are also a number of building societies and banks – such as the Newcastle Building Society, the West Bromwich, the Stroud & Swindon and Triodus bank – which have accounts that make regular donations to charity, based on your savings balances. Interest rates vary from as low as 1.6 per cent to a relatively competitive 4.85 per cent with the Saffron Building Society.
"Whilst the charity affinity savings accounts do not pay market leading rates of interest, they are by no means the lowest on offer," says Rachel Thrusell, the head of savings at moneyfacts.co.uk. "Some savers are more than happy to sacrifice a little of their interest rate in the knowledge that their chosen charity will benefit as a result. The average rate, based on a £5,000 deposit, is 3.87 per cent, compared to an average of 4.157 per cent on all no notice savings accounts."
If you want to donate every time you shop, consider taking out an affinity credit card, which will give a percentage of every transaction you make to charity. Comic Relief's Visa card, for example, donates 0.5 per cent of every purchase to charity – and a lump sum of £6 when you make your first transaction. It has an APR of 17.9 per cent. While the Shelter Visa card has a much lower APR, of just 12.9 per cent, but only donates 0.25 per cent of each transaction to the charity. However, its initial donation is £20.
"The majority of charity donation cards do charge a higher than average interest rate," says Samantha Owens, the head of personal finance at moneyfacts.co.uk. "So for those consumers without a competitive deal and holding a balance on their card, this can be a costly way of giving.
"In this case it may be beneficial to make use of a balance transfer deal, or at the very least a low rate purchase card and use the cost savings to give independently to charity."
For a list of these cards, visit www.moneyfacts.co.uk.
Donating shares or pensions
One upside of donating shares to charity, is that it eliminates any capital gains tax liability you may have had. If you want to make a relatively large donation of shares, this should be relatively straightforward to do. But if you are transferring very small amounts, you'll need to get in touch with a company called Sharegift ( www.sharegift.org).
"We're used when people are left with something that is too small to sell," says Claire Mackintosh, the founder of Sharegift. "Occasionally, people sell the wrong number of shares, or end up with a small holding in a foreign company after a merger, and we help them donate these to charity. Unfortunately, you can't just get rid of a small shareholding. That's where we come in."
It is also possible to donate your pension fund to charity, after a recent change in the pension rules. Rob MacKenzie of accountants CLB Littlejohn Frazer says that by switching your pension fund into an 'Alternatively Secured Pension', you can avoid having to buy an annuity at age 75 (which is otherwise compulsory), and can ensure that 100 per cent of your remaining pension fund is donated to charity when you die. If you buy an annuity, anything that's left in your fund goes to the insurance company when you die.
Raise more at a one-off event with Just Giving
If you are fundraising for a one-off event, one of the easiest ways to maximise donations is by taking advantage of an online aggregator such as www.justgiving.com.
These allow you to collect all your donations in one place – and make it possible for donors to pay instantly by debit or credit card, rather than forcing you to make the effort of collecting cash or cheques off each person.
Anne-Marie Huby, the managing director of Just Giving, says her company also ensures that charities get the full tax relief on any donations, and get the money shortly after it is donated, rather than after the event has taken place.
She adds that people tend to raise much more money using Just Giving than they do using more traditional techniques.
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