Charitable giving is undoubtably a good thing. HMRC recognise this by providing valuable UK tax reliefs and exemptions for charitable giving. The law previously allowed for charities in the European Economic Area to benefit from these tax reliefs but the Government announced in its Budget in March 2023 that these benefits will be restricted to charities registered in the UK.
Gift Aid is an income tax relief afforded to qualifying charitable donations made by individuals to a registered UK charity.
To illustrate the value for donors and their charities, a top rate (45%) taxpayer can make a £100 Gift Aid qualifying donation to a UK charity with a net cost to them of just £55. However, in the case of gifts to non-UK charities, Gift Aid cannot apply. In addition, there is no exemption for capital gains tax for gifts to non-UK charities.
Lifetime gifts and gifts in wills to UK charities generally attract 100% inheritance tax relief. In addition, the reduced rate of 36% inheritance tax may apply to a deceased's entire estate if they give over 10% of their estate to a UK charity. However, outright gifts to non-UK charities do not benefit from this favourable treatment. For lifetime gifts, a donor's estate will instead be exposed to a 20% inheritance tax charge and an additional 20% charge if they pass away within seven years of making the donation. Charitable will legacies to non-UK charities will suffer a 40% charge to inheritance tax.
Gifting to non-UK charities: Is there a solution?
It is possible to ultimately benefit a non-UK charity through tax-efficient giving. The following are tax-efficient solutions for donors gifting to non-UK charities:
- Establishing, or giving to, an existing UK charity. These gifts need to be carefully structured;
- Donating to a donor advised fund; and
- For US citizens or green card holders (particularly those with a domicile in England and Wales), donating to a dual US-UK qualifying charity.
Tax-efficient charitable giving is not a given and specific advice should be obtained to ensure maximum impact. Please reach out for assistance on how to do so carefully.
For further information contact: Moustapha Hammoud and Olivia Lines