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Giving shares to charity

Practical Issues
Nocton
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Giving shares to charity

#365762

Postby Nocton » December 13th, 2020, 4:59 pm

I should like to make a substantial donation to charity, but my taxable income is insufficient to allow the charity to claim 25% gift aid on the whole amount. The shares I should sell to raise the amount will have about 80% capital gain resulting in a large CGT as I have already used all my personal capital gains allowance this year. Rather than gift the shares to the charity, which in any case may not wish to receive shares instead of cash, I have been looking at using the Charities Aid Foundation. This seems to offer the tax relief on selling the shares to charity and giving me the cash + 25% to donate to the charity. Has any one any experience of using CAF or any advice on donating shares?

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Re: Giving shares to charity

#365777

Postby GrahamPlatt » December 13th, 2020, 5:26 pm

Current situation seems lose-lose. You get a CGT bill and the charity can't get the 25% tax refund? But help me here; doesn't your CGT count of itself as a tax payment on your behalf - hence you will have tax to pay, so the 25% can be reclaimed from that. And do you mean to say you have NO shares in your portfolio sitting at a loss (or indeed losses you can carry forward). If so you could play it so's you pay exactly enough (and no more) tax to cover the 25% due to the charity. Or am I missing something?

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Re: Giving shares to charity

#365785

Postby Howard » December 13th, 2020, 5:36 pm

Nocton wrote:I should like to make a substantial donation to charity, but my taxable income is insufficient to allow the charity to claim 25% gift aid on the whole amount. The shares I should sell to raise the amount will have about 80% capital gain resulting in a large CGT as I have already used all my personal capital gains allowance this year. Rather than gift the shares to the charity, which in any case may not wish to receive shares instead of cash, I have been looking at using the Charities Aid Foundation. This seems to offer the tax relief on selling the shares to charity and giving me the cash + 25% to donate to the charity. Has any one any experience of using CAF or any advice on donating shares?


I have used a CAF account for charitable giving for more than 40 years. Substantial amounts.

Given that you are planning to give a substantial donation to charity I would suggest giving CAF a call and asking their advice. Every time I have had a query, they have been helpful. I called them recently and they answered the phone quickly. Though the first person I spoke to couldn't deal with my question, they put me in contact with a person who corresponded with me by email and the query was quickly sorted.

It is worth mentioning that if you do go ahead with a large donation, CAF may ask you some sensible questions about your gift. For HMRC reasons they may just check that, for example, you aren't buying all your Christmas presents from a National Trust shop and pretending that this is a charitable donation. ;)

regards

Howard

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Re: Giving shares to charity

#365787

Postby mc2fool » December 13th, 2020, 5:44 pm

Nocton wrote:I should like to make a substantial donation to charity, but my taxable income is insufficient to allow the charity to claim 25% gift aid on the whole amount. The shares I should sell to raise the amount will have about 80% capital gain resulting in a large CGT as I have already used all my personal capital gains allowance this year. Rather than gift the shares to the charity...

Gifting the shares seems to be enormously advantageous:

Income Tax relief
You can pay less Income Tax by deducting the value of your donation from your total taxable income.


Capital Gains Tax relief
You do not have to pay Capital Gains Tax on land, property or shares you give to charity.


https://www.gov.uk/donating-to-charity/donating-land-property-or-shares

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Re: Giving shares to charity

#365791

Postby Lootman » December 13th, 2020, 6:00 pm

Nocton wrote:I should like to make a substantial donation to charity, but my taxable income is insufficient to allow the charity to claim 25% gift aid on the whole amount. The shares I should sell to raise the amount will have about 80% capital gain resulting in a large CGT as I have already used all my personal capital gains allowance this year.

A bit off-topic perhaps but I think it is very unusual for someone to not earn enough income to pay any income tax, and yet more than use up their annual CGT-free allowance each year. In most cases those who pay CGT each year are higher-rate income taxpayers.

Not impossible perhaps in a one-off year. But every year? You must have some very interesting finances. Day trader perhaps?

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Re: Giving shares to charity

#365829

Postby Nocton » December 13th, 2020, 7:22 pm

Thanks for replies.
Lootman wrote:A bit off-topic perhaps but I think it is very unusual for someone to not earn enough income to pay any income tax, and yet more than use up their annual CGT-free allowance each year. In most cases those who pay CGT each year are higher-rate income taxpayers.
Not impossible perhaps in a one-off year. But every year? You must have some very interesting finances. Day trader perhaps?

I did not say that I did not pay any income tax, just that my taxable income is not enough to allow the charity to claim the 25% gift aid. It is quite easy to have large capital gains relative to a not so high taxable income. Lots of my capital is in an ISA and VCTs, plus many investments/shares are low-yielding, e.g the particular share I am wanting to top-slice is Scottish Mortgage which I have held for some years. Enough said re CGT I think.
GrahamPlatt wrote:Current situation seems lose-lose. You get a CGT bill and the charity can't get the 25% tax refund? But help me here; doesn't your CGT count of itself as a tax payment on your behalf - hence you will have tax to pay, so the 25% can be reclaimed from that. And do you mean to say you have NO shares in your portfolio sitting at a loss (or indeed losses you can carry forward). If so you could play it so's you pay exactly enough (and no more) tax to cover the 25% due to the charity. Or am I missing something?

Yes, CGT does count as part of my tax for gift aid, but as mmc2fool says "Gifting the shares seems to be enormously advantageous". and I have nowhere near enough losses to offset the CGT that would be payable. I usually clean up my portfolio a the tax year end to offset capital gains as you suggest, and I already did that this year especially with the coronavirus shock to some shares. In fact this year has produced some very large gains with the bounce back in the stock markets.

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Re: Giving shares to charity

#365862

Postby Gengulphus » December 13th, 2020, 10:21 pm

Nocton wrote:I should like to make a substantial donation to charity, but my taxable income is insufficient to allow the charity to claim 25% gift aid on the whole amount. The shares I should sell to raise the amount will have about 80% capital gain resulting in a large CGT as I have already used all my personal capital gains allowance this year. Rather than gift the shares to the charity, which in any case may not wish to receive shares instead of cash, I have been looking at using the Charities Aid Foundation. This seems to offer the tax relief on selling the shares to charity and giving me the cash + 25% to donate to the charity. Has any one any experience of using CAF or any advice on donating shares?

A charity (CAF in this case) cannot claim Gift Aid on a donation of shares, only on one of cash - see e.g. what CAF has to say about Gift Aid:

A charity can claim Gift Aid when you make a monetary donation from your own funds and have paid UK Income and / or Capital Gains Tax during that tax year.

The amount of tax you pay needs to be at least equal to the value of Gift Aid the charity or CASC will claim on your donation(s).

The two points to note in particular are that the donation needs to be monetary to get Gift Aid, and that CGT paid increases the amount of Gift Aid your donations can get just as much as income Tax paid does. And incidentally, something that quote doesn't make entirely clear is that the amount of Income Tax and CGT that you calculate from your capital gains and income does not limit the amount of Gift Aid charities can claim on your monetary donations - if for instance you calculate that you are due to pay HMRC £15k Income Tax and £5k CGT, but you've made £100k of Gift-Aided donations to charities and the charities have accordingly claimed £25k of Gift Aid, HMRC don't say to the charities "Unfortunately the donor is only liable to pay £20k tax, so we'll have to reclaim £5k of the Gift Aid". Instead, a late stage in your tax calculation discovers that you've said in your Gift Aid declarations that you'll pay at least £25k in tax for the year, so your normal calculation of £15k Income Tax + £5k CGT = £20k tax due needs to be increased to £25k tax due.

What CAF have to say about giving shares is here. There are a number of options, but actually the basic situation for both a Gift-Aided cash donation and a gift of shares is that the charity benefits from the gross value of your donation, while it only ends up costing you that amount net of tax - just achieved in different ways and with different conditions about the amount of tax you've paid, etc. E.g. suppose you're a 40% taxpayer and you want the charity to benefit by £5k. Then:

* If you do it by making a Gift-Aided cash donation, you should donate £4k. The charity's Gift Aid claim gives them an extra £1k, for £4k+£1k = £5k in total, and your tax calculation reduces your tax bill by £1k, for a net cost to you of £4k-£1k = £3k, which is equal to £5k net of 40% tax. The details of how the tax calculation reduces your tax bill by £1k are that your basic-rate band is expanded by the gross amount of the donation, i.e. £5k, so £5k of income that would have been taxed at 40% is instead taxed at 20% (*).

* If you do it by making a gift of shares, you should donate £5k worth of shares, and you get Income Tax relief of £5k of income, which is normally worth £2k to you (**). The charity doesn't get to claim Gift Aid on it, so only benefits by £5k, not more, and the net cost to you is £5k-£2k = £3k.

Various things can affect that basic story, such as dividend income, your CGT situation, the withdrawal of the personal allowance above taxable income of £100k (which like the basic-rate band is also increased by the grossed-up value of Gift-Aided donations), etc. So I can't say for certain whether selling the shares and making a Gift-Aided cash donation is better, or donating the shares and letting the charity sell them is better, or there's no significant difference - all I can say is try the tax calculation both ways, bearing in mind that the cash donation should be 80% of the value of the shares donation to end up with equal benefits to the charity, and see which one works better for your particular circumstances.

(*) Though note that if the chunk of income affected happens to be dividend income, it's instead that it's taxed at 7.5% rather than 32.5%, producing a tax saving of £1.25k rather than £1k. You don't however get to make a choice which income is affected - it's just a matter of dividend income being counted as the top slice of your income, and whether that causes the income covered by the expansion of your basic-rate band to be dividend income or non-dividend income.

(**) Though dividend income can again affect that!

Gengulphus

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Re: Giving shares to charity

#366101

Postby Nocton » December 14th, 2020, 2:42 pm

Thanks Gengulphus for a comprehensive explanation of the options. Basically it seems that there is little difference from the tax point of view and the mount the charity receives whichever way I do it. But is there any benefit in using CAF. I've yet to read their literature in detail, but initial enquires and their web site seemed to imply their could be a tax advantage to me.

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Re: Giving shares to charity

#366366

Postby Nocton » December 15th, 2020, 9:37 am

I have concluded that there is no advantage in giving shares instead of cash to a charity.

The key is that if I give shares the charity cannot claim 25% gift aid. [I don't think that the HMRC web site makes that clear and I certainly did not realise it until it was mentioned on this thread.] So if I want ensure that a charity receives £5000 I should have to give £5,000 worth of shares instead of £4,000 of cash. So if the capital gain on the shares was 75%, as in the shares I am thinking of selling or giving, the CGT would be either 10% or 20% of 0.75 x 5000 = £375 or£750. Both are less than the £1,000 difference between cash and shares. The reduction in the amount of income tax to be paid does not change the conclusion.
I can't see any advantage in the CAF route for me and they charge for their services. Selling the shares and donating seems to involve a lot less faff.

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Re: Giving shares to charity

#366379

Postby yorkshirelad1 » December 15th, 2020, 10:33 am

Nocton wrote:I have concluded that there is no advantage in giving shares instead of cash to a charity.

The key is that if I give shares the charity cannot claim 25% gift aid. [I don't think that the HMRC web site makes that clear and I certainly did not realise it until it was mentioned on this thread.] So if I want ensure that a charity receives £5000 I should have to give £5,000 worth of shares instead of £4,000 of cash. So if the capital gain on the shares was 75%, as in the shares I am thinking of selling or giving, the CGT would be either 10% or 20% of 0.75 x 5000 = £375 or£750. Both are less than the £1,000 difference between cash and shares. The reduction in the amount of income tax to be paid does not change the conclusion.
I can't see any advantage in the CAF route for me and they charge for their services. Selling the shares and donating seems to involve a lot less faff.


Interesting and helpful summary of findings. Thank you.

FWIW, I sometimes use CAF and sometimes go direct when donating to charity. Horses for courses.
CAF charge for their services (they have costs to cover). During the year, if I make several smallish donations to charities via CAF, it's just one entry on my tax return (one CAF GiftAid donation not the several charities). If it's a sizeable donation, I go direct (no point in paying CAF for work I can do). CAF also offer several services which might be useful, such as anonymous giving (if you don't want to be identified, or get begging mailshots later from the charity), and online giving (log in to your online CAF account, select the charity, and make the donation). I am a customer of CAF, but no other connection with them.

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Re: Giving shares to charity

#366391

Postby mc2fool » December 15th, 2020, 10:54 am

Nocton wrote:I have concluded that there is no advantage in giving shares instead of cash to a charity.

The key is that if I give shares the charity cannot claim 25% gift aid.

Yes, but the donation is, in effect, gross and you don't pay capital gains tax on them and you get a reduction in income tax.

So, let's say you've got £5000 of shares you want to donate, which have a 75% gain, and you're a BRT and have used up your CGT allowance....

You donate the £5000 of shares:
- the charity receives £5000 (of shares), and that's it.
- you don't pay any CGT
- you get £1000 "back" (a reduction) of your income tax
Charity receives £5K, you get £1000 "back" in your pocket (being the reduction in income tax that now doesn't have to leave your pocket)

You instead sell the shares and donate £4000 to the charity, leaving £1000 in your pocket:
- the charity receives £4000 + £1000 of Gift Aid, for a total of £5000
- you pay £375 CGT
- you have no reduction in income tax
Charity receives £5K, you have £1000-£375 = £625 in your pocket

So, if I've understood it correctly, donating shares, for that particular case at least, looks the better. Of course, it will be individual circumstances dependent....

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Re: Giving shares to charity

#366406

Postby Nocton » December 15th, 2020, 11:34 am

There is a mistake in your conclusions mc2fool when you say in the second scenario "you have no reduction in income tax". There is for the £4,000 you have donated. It's £800, not the £1000 in your first scenario, but the overall result is still better than the first scenario. This is how I normally gift, so I know how it works. This is how HMS puts it on the tax calculation:
How we have worked out your income tax
Your basic rate limit has been increased by £???? to £????? for Gift Aid payments.
This reduces the amount of income charged to higher rates of tax.


So, in my case it means that I reduce, or eliminate, depending on the size of the donation, the amount payable at 40% so it's 20% . As you say "it will be individual circumstances dependent".

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Re: Giving shares to charity

#366446

Postby Nocton » December 15th, 2020, 1:57 pm

Further to my last post, I find after checking again with HMRC that there is a slight mistake. When gifting cash one gets the tax relief on the grossed-up amount - the cash amount you gifted plus the 25% the charity claims as gift aid. So in the second scenario one still gets tax relief of £1000, the same as in the first scenario, provided that one would otherwise have paid higher rate tax of 40%, making a total benefit over giving shares of £1625. This is the HMRC's explanation

Higher rate taxpayers
If you pay tax above the basic rate, you can claim the difference between the rate you pay and basic rate on your donation. It’s the same if you live in Scotland.
Example
You donate £100 to charity - they claim Gift Aid to make your donation £125.
You pay 40% tax so you can personally claim back £25.00 (£125 x 20%).


The whole business seems unnecessarily complex, but I think that I have understood it now.

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Re: Giving shares to charity

#366478

Postby mc2fool » December 15th, 2020, 4:42 pm

Nocton wrote:There is a mistake in your conclusions mc2fool when you say in the second scenario "you have no reduction in income tax". There is for the £4,000 you have donated. It's £800, not the £1000 in your first scenario, but the overall result is still better than the first scenario. This is how I normally gift, so I know how it works. This is how HMS puts it on the tax calculation:
How we have worked out your income tax
Your basic rate limit has been increased by £???? to £????? for Gift Aid payments.
This reduces the amount of income charged to higher rates of tax.


So, in my case it means that I reduce, or eliminate, depending on the size of the donation, the amount payable at 40% so it's 20% . As you say "it will be individual circumstances dependent".

No, while what you say (amended) is right for an HRT, I was correct in what I said -- you overlooked my introductory line that said "and you're a BRT". ;)

(And if you are an HRT then in the first, shares, scenario you'd get "back" £2000.)

I must admit though to being quite confused about your tax situation ... you started off in this thread saying "my taxable income is insufficient to allow the charity to claim 25% gift aid on the whole amount" but now you're talking HRT figures, and any HRT taxpayer will (surely?) pay more than enough tax for the Gift Aid on the £4/5000 you've since said is the amount you want to donate. :?

Of course, whether you want to give specifics of your tax situation or not is totally up to you, but I am puzzled....

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Re: Giving shares to charity

#366482

Postby Lootman » December 15th, 2020, 4:53 pm

mc2fool wrote:I must admit though to being quite confused about your tax situation ... you started off in this thread saying "my taxable income is insufficient to allow the charity to claim 25% gift aid on the whole amount" but now you're talking HRT figures, and any HRT taxpayer will (surely?) pay more than enough tax for the Gift Aid on the £4/5000 you've since said is the amount you want to donate. :?

Of course, whether you want to give specifics of your tax situation or not is totally up to you, but I am puzzled....

I asked a similar question up-thread and am still confused after his answer! I had assumed that he maybe had only capital gains and little or income i.e. is some type of trader. It would normally be odd to have huge gains and little income, but not impossible.

But since I don't really know anything about Gift-Aid and do not use it, I let it go.

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Re: Giving shares to charity

#366588

Postby Gengulphus » December 16th, 2020, 12:43 am

Nocton wrote:Thanks Gengulphus for a comprehensive explanation of the options. Basically it seems that there is little difference from the tax point of view and the mount the charity receives whichever way I do it. But is there any benefit in using CAF. I've yet to read their literature in detail, but initial enquires and their web site seemed to imply their could be a tax advantage to me.

CAF is itself a charity, and there is no more or less of a tax advantage for donations to them than for any other charity. There is however a couple of tax admin advantages if you channel all your donations through them: you only have to make one Gift Aid declaration to CAF, rather than one to each charity you give to, and you have much less of a problem keeping track of all the donations you've made so that you can produce the correct total for your tax return, because your CAF account statement does that keeping track for you. A CAF account is also quite helpful in cases where one realises shortly before a tax deadline that one would like to give more to charity, but are feeling indecisive about which charities one most wants to benefit: one can donate the desired amount to CAF, establishing that the donation has been made for tax deadline purposes, and then consider how to distribute it at one's leisure.

There is also a case where one can get an increased benefit to the charity. That happens when the charity is running an appeal with "match-funding" - i.e. where some organisation or other sponsor has offered to match donations made to the charity. The reason is that the way such appeals typically interact with Gift Aid is that you give say £80 to the charity, and the charity reclaims £20 from HMRC and £80 from the match-funder, for a total of £180. But if you make your donation via a CAF account, what happens is typically that you give £80 to CAF, CAF reclaims £20 from HMRC and takes £4 (4% of the total) for their own purposes, leaving £96 which you can donate to the charity, and the match-funder matches it with another £96, for a total of £192. That extra £12 benefit to the charity isn't a huge amount extra, but it's a welcome bonus!

But the 4% taken by CAF does normally reduce the amount the charity benefits by, and you'll need to decide for yourself whether what you get for that cost is worth it. Incidentally, one particular factor in that is whether you want to support the work of CAF and the National Council of Voluntary Organisations (NCVO), as the 4% breaks down as a 2.25% donation to CAF, a 1% donation to the NCVO, and a 0.75% charge for CAF's services.

Gengulphus

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Re: Giving shares to charity

#366592

Postby Gengulphus » December 16th, 2020, 1:06 am

mc2fool wrote:
Nocton wrote:I have concluded that there is no advantage in giving shares instead of cash to a charity.

The key is that if I give shares the charity cannot claim 25% gift aid.

Yes, but the donation is, in effect, gross and you don't pay capital gains tax on them and you get a reduction in income tax.

So, let's say you've got £5000 of shares you want to donate, which have a 75% gain, and you're a BRT and have used up your CGT allowance....

You donate the £5000 of shares:
- the charity receives £5000 (of shares), and that's it.
- you don't pay any CGT
- you get £1000 "back" (a reduction) of your income tax
Charity receives £5K, you get £1000 "back" in your pocket (being the reduction in income tax that now doesn't have to leave your pocket)

You instead sell the shares and donate £4000 to the charity, leaving £1000 in your pocket:
- the charity receives £4000 + £1000 of Gift Aid, for a total of £5000
- you pay £375 CGT
- you have no reduction in income tax
Charity receives £5K, you have £1000-£375 = £625 in your pocket

So, if I've understood it correctly, donating shares, for that particular case at least, looks the better. Of course, it will be individual circumstances dependent....

One particular case of circumstances differing is that if someone wants to make an even more substantial donation to charity, that extra CGT paid can be used to fund yet more Gift Aid! And as Nocton's OP indicates that he isn't paying enough Income Tax to cover the entirety of the donation he wants to make, that may well be highly relevant to his individual circumstances.

mc2fool wrote:I must admit though to being quite confused about your tax situation ... you started off in this thread saying "my taxable income is insufficient to allow the charity to claim 25% gift aid on the whole amount" but now you're talking HRT figures, and any HRT taxpayer will (surely?) pay more than enough tax for the Gift Aid on the £4/5000 you've since said is the amount you want to donate. :?

Nocton's words were (with my bold) "So if I want ensure that a charity receives £5000 I should have to give £5,000 worth of shares instead of £4,000 of cash." - so he didn't actually say that was the amount he wants to donate, he was just giving an example of how it would work for a particular amount.

But basically you're right: the best way to work this sort of thing out is to run the numbers both ways and see which comes out better.

Gengulphus

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Re: Giving shares to charity

#366634

Postby Nocton » December 16th, 2020, 8:59 am

Thank you for the further replies. There is no puzzle about the tax situation. First, one can have a lot of money in tax-exempt vehicles ISAs, VCTs etc. the income from which is not declared on a tax return and is not eligible for gift aid. Second, if one had an income of say £60K, so paying higher rate tax, and wanted to donate £100K there would not be enough tax paid on the income to give the charity the 25% gift aid, except by my topping it up on my self-assessment return.

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Re: Giving shares to charity

#405715

Postby EthicsGradient » April 20th, 2021, 11:14 pm

I am in a similar position to Nocton; wishing to make a donation to a charity which could attract more tax relief than I am likely to pay in the year (as a basic rate taxpayer) as pure income tax. And I am even similar in thinking that a donation of some Scottish Mortgage shares, which are now worth about 9 times what I paid for them, would be an efficient way to make the donation - I have enough unsheltered capital gains that it'd be a long time before I could use yearly allowances to get through it all. In effect, I would expect to still have some of it when I die, and with no dependents, I'd give a lot of it to charities then. But it would be better if they got it now.

The HMRC web pages, and various tax commentaries, always talk about such a gift attracting "income tax relief". But since the taxable gains from capital gains get counted for purposes of what band you're in, and capital gains reporting is in the same self-assessment return, does that really mean "(income tax+capital gains tax) relief" - if the capital gains were on a different sale, above the yearly allowance?

Example figures to hopefully make clear what I suspect I'm not explaining well:

Value of donated shares: £20,000
Claimable relief: £4,000
(strict) income tax: £2,500
Sale of different shares: £50,000
Cost of those shares: £16,000
taxable gain: 50000-16000-12300=£21,700
capital gains tax (BRT rate): £2,170
total tax before relief: 2500+2170=£4,670
Tax after relief: £670

(and still in the basic rate band from an income of £25,070+taxable gain of £21,700=£46,770)

Does that make sense? Does anyone (everyone?) think that the tax relief would be applied to the total of strict income and taxable capital gains tax? I suspect I'll end up asking HMRC for confirmation, but it'll help if I know how to explain the idea.

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Re: Giving shares to charity

#405717

Postby PinkDalek » April 20th, 2021, 11:33 pm

EthicsGradient wrote:... Does anyone (everyone?) think that the tax relief would be applied to the total of strict income and taxable capital gains tax? ...


See https://www.gov.uk/government/publications/charities-detailed-guidance-notes/chapter-3-gift-aid which includes:

Anyone who makes a Gift Aid donation must be charged Income Tax and/or Capital Gains Tax for the year of donation at least equal to the tax treated as deducted from all their Gift Aid donations.

Despite this if you donate the Scottish Mortgage shares (to a charity willing to accept them), that will not give rise to Chargeable Gains on you, as gifts of such assets to charities are not chargeable (nor can capital losses be claimed).

Further, from the same link, A donation qualifies for Gift Aid if it’s a gift consisting of a ‘payment of a sum of money’. I don't therefore believe a gift of shares qualifies for Gift Aid anyway.

You'd therefore need to sell sufficient yourself, thus paying CGT, and donate the cash.

Something along those lines anyway. I think these aspects have already been covered in this topic but have studied it.


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