Give to charity but keep your options open

Clifford German examines new schemes that allow more flexibility in donating money

Many people would like to give money to charity but are worried about possibly finding themselves short of income and capital to meet their own financial needs.

In an attempt to meet this genuine worry the Charities Insurance Association has devised a new method of giving which allows donors the opportunity of drawing a tax-free income of 5 per cent for their own use, and if they do need to do so they can reclaim the capital in full.

Readers who would like a free information pack should call 01622 606355. The new plan is called Legacy Enhancement and the bequest is invested in a with-profits investment bond managed by Legal & General.

The investor can draw 5 per cent from the bond tax-free, while the charity can keep the remaining income and also knows it has a likely future bequest which helps it plan its own future finances. Investors can, however, elect to leave all the income to roll-up in the fund and increase the future value of the bequest.

A third option allows the investor to draw the income and then covenant it to the charity, a fourth alternative allows the investor to use the income to buy a life assurance policy which can be assigned to the charity and increases the eventual pay-out when the donor eventually dies.

Exactly how much depends on the donor's age and life expectancy, but a 65-year-old woman could more than double the value of the original bequest.

Investors can also make monthly contributions to buy a life assurance policy out of income without actually committing a lump sum at all.

New ways of encouraging bequests to charities are more necessary than ever because the calls on their resources continue to increase while all but a handful of high profile charities have seen their annual incomes shrink in the last two years because potential givers think the National Lottery is looking after them.

In fact most charities are net losers from the lottery, and urgently need to tap streams of cash and concern.

Charities do have tax-exempt status, which means they do not pay income tax on the income they generate and they can claim tax rebates on gifts which individuals have made out of taxed income provided the donors sign a covenant to make annual donations for five consecutive years.

So if a top-rate taxpayer pays pounds 60 a year into the scheme, the charity gets pounds 40 from the taxman.

But many donors are reluctant to make a five-year commitment in case they are unable to keep it up.