Money: The best way to give a little

Tax schemes gain millions for charities, writes Harvey Jones

THE BRITISH appear to be losing their charitable instincts. The proportion of households giving money to charity has dropped by more than 5 per cent over the last 20 years, according to research from the Institute for Fiscal Studies (IFS).

Worryingly for charities, younger people are less likely to give than older people and are less likely to give than the older generation were when they were young. Put simply, the older, wealthier and better-educated you are, the more likely you are to give.

Another concern for charities is that only 10 per cent of regular donors take advantage of schemes that allow them to give in a tax-efficient manner. Many people are unaware of the options or assume they will be complicated, yet the schemes are simple to set up and cost the donor nothing. They can increase the value of a donation by up to a third.

The latest such scheme is Millennium Gift Aid, announced by Gordon Brown, the Chancellor, in the Budget and due for launch soon. This offers tax incentives for contributions to charities funding education and anti-poverty projects in some of the world's poorest countries.

This is basically a short-term enlarging of the Gift Aid scheme, introduced in 1990, which allows charities to reclaim basic-rate tax on one-off donations of at least pounds 250. This increases the value of a gift of pounds 300 to nearly pounds 390. Top-rate taxpayers can reclaim the marginal rate of 17 per cent for themselves.

Millennium Gift Aid lowers the minimum individual donation for individuals from pounds 250 to pounds 100. This new minimum can be paid in instalments. The Millennium scheme runs until the end of the year 2000 and is to be run by existing UK-recognised charities. Charities have called for the new pounds 100 limit to be made permanent and applied to all recognised charities.

There are other options for tax-efficient giving. If you are willing to commit to regular donations for at least four years, a Deed of Covenant allows the charity to reclaim basic rate tax from the Inland Revenue. The agreement is legally binding and there is no maximum limit on donations, which can be made monthly or annually. As with Gift Aid, top-rate taxpayers can reclaim the extra 17 per cent for themselves.

If your employer has a payroll charitable giving scheme you can make monthly donations to a chosen charity direct from your pay or pension at source, before tax. You pay tax only on your remaining income, which means a donation of pounds 25 would cost you just pounds 19.25, or pounds 15 for top-rate taxpayers. The maximum donation under this scheme is pounds 100 a month.

Oxfam is one of the charities that has managed to keep donation levels ahead of inflation, says Simon Collings, its head of appeals. The charity only receives a small percentage of its income through regular giving but says that if all regular givers set up a covenant it would generate an extra pounds 1.3m a year.

The advantages to charities of regular covenants and payroll giving is that they ensure regular income and allow forward financial planning. Charities can provide you with information and the relevant forms for making tax-efficient donations.

Many people give to charity as a spontaneous response to a newspaper advertisement or telethon appeal.

You can still give cash efficiently in these situations by setting up a Charities Aid Foundation (CAF) personal charity account. You pay into an account set up by CAF, which reclaims the tax and adds it to your account. You are then sent a chequebook and card that you can use to make donations, whenever you wish, to recognised charities.

q Charities Aid Foundation: 01732 520000.

Charity cards

Charity credit cards work in the same way as ordinary cards, except that a small donation is made to the charity. This is usually pounds 5 when you take out the card and then 25p for every pounds 100 you spend. Charities argue that these small sums soon build up - the Halifax Visa charity card has raised almost pounds 9m for the British Heart Foundation, Imperial Cancer Research Fund and Mencap since its launch in 1988.

Bank of Scotland has issued more than 600,000 cards to nearly 500 different charities. Its biggest success has been the RSPCA card, which has raised pounds 1.2m since 1993.

The snag with many charity cards is that they aren't very competitive. The APR on Bank of Scotland charity cards is 20.9 per cent, and there's an annual fee of pounds 7.50 unless you spend more than pounds 2,000 on the card each year. So if you are a big spender who pays off the card bills each month, a charity card is worth considering. The best deals for those who don't pay off each month but still want a charity card is Midland's CareCard (which helps several charities, including the Cancer Research Campaign) or its Shelter card. Both carry an APR of 18.09 per cent and no annual fee.

q Bank of Scotland: 0800 716097; Midland: 01702 353344.