Submitted by Sestini & Co
| on Mon, 09/30/2019 - 11:42 | In Tax planning and pensions
If you’re paying tax in both the UK and US and you’re thinking of
donating to charity, you need to make sure you’re making the most tax efficient
use of your money.
Dual qualified charities
It’s usually more tax efficient for someone who’s resident in the
UK to donate to a UK rather than a US charity because you can claim higher tax
relief. This means you won’t be liable for inheritance tax on larger donations
either. For a useful overview of tax relief when donating to a charity in the
UK, take a look at this article on the UK government’s website.
If you pay tax in both the UK and US, it might be worth donating
to a dual qualified charity as there are tax incentives in both countries.
As noted in this article, there are tax incentives for donations of more illiquid assets in the US but if you’re coming from the US to the UK then there aren’t as many tax incentives.
It’s also worth noting that there is no limit on the amount of tax relief you can claim for charitable giving in the UK, whereas other countries limit the amount of income tax credit you can get.
Whilst you may be able to claim 100% of the value of a donation as
tax relief on your income, cash donations in the UK aren’t treated the same.
Through the UK’s Gift Aid tax incentive scheme, if
you’re a “higher rate” (40%) and “additional rate” (45%) taxpayer you can claim
part of the tax benefit on your self-assessment tax returns and the charity
receives the other part of the tax benefit directly from HMRC.
It’s also worth noting that there is no limit on the amount of tax
relief you can claim for charitable giving in the UK, whereas other countries
limit the amount of income tax credit you can get. For example, the US is
subject to a 60% limitation but you could in theory offset all of your taxable
income through charitable giving.
Charitable donations remain exempt from inheritance
(estate) tax. UK inheritance tax is payable on property worth over £325,000 but
if you leave at least 10% of your estate to a charity in the UK, the
inheritance tax rate reduces from 40% to 36%.
As reported in the FT, there’s
a growing trend in the UK for wealthier taxpayers to set up their own charity
so they can control how the donations are distributed but the legal and
administrative costs can be a drawback and is only really worth doing if very
substantial amounts are donated. Also, the US only allows 30% of
income to be offset through giving to a private foundation as opposed to
60% for a public charity.
is a complicated area, so if you’re considering making a donation but
you’re not sure how this will affect you and would like to speak to us, give us a call on 01761 241 861 or email us today. We can help you identify tax efficiencies
for your own or your family’s situation.
We will be pleased to advise you or to invite you into our
offices in Paulton, near Bristol and Bath, for a consultation.