As a nation, we gave over £9 billion to charity last year. (Source: Charity Aid Foundation)
In addition, 53,000 legacies were left, totalling £1.4 billion (Source: Legacy forecasting)
That’s something to be proud of.
However, we also gave more than £5 billion to the tax man in Inheritance Tax (IHT) (Source: Office for Budget Responsibility (OBR)). That’s money which could have been put to better use, especially if it could have been given to good causes instead.
Making gifts to charities achieves three things:
- It makes you feel good
- It helps animals, people and communities in need
- It puts that money immediately outside of your estate, and is exempt from IHT liability
Give more, and make the most of your ability to help, by avoiding these six common mistakes:
1. Not using Gift Aid
Gift Aid allows UK charities to reclaim the tax they would otherwise lose on your donation. When donating, you usually need to put a mark in a box to signify that you would like to use Gift Aid on your donation.
Doing so means that the charity can keep more of the money you have given and put it to use toward causes that you believe in.
In the 2016/17 tax year, Gift Aid enabled charities to reclaim £1.27 million which would otherwise have been lost to tax. (Source: Gov.uk)
2. Donating at the wrong time
We all feel more generous at Christmas, but the causes you support need funding all year round. In addition, a regular, monthly donation is much better for both you and the charity. This is because you help them to make an income each month, and it makes your own budgeting much easier.
You may even find that you can afford to donate more overall by giving a small amount each month, rather than a yearly lump sum.
3. Not reviewing subscriptions
Monthly subscriptions and Direct Debits can be easy to forget about and you could be donating for longer than you planned to. Make sure that you are reviewing your budget regularly so that your budget makes financial sense.
You may even find that you can afford to donate more, as your circumstances change.
4. Failing to research
Charities have dominated the headlines for all the wrong reasons lately, so make sure that you know who gets your money and how it is used. Investigate the allocation of funds and make sure that a larger proportion of your donation is used to help the cause, rather than funding the lavish lifestyle of the CEO.
Consider where your donations are going. Remember that donations to local charities will have a more immediate and visible effect, but national organisations are able to reach further and hold more power.
5. Not keeping records
Charitable donations are exempt from IHT, but you may need to prove that you have donated the money. Keeping your proof of donation is the best way to do this. It is worth keeping these documents with your will, as the eventual executor of your estate may need to rely on them.
If you like to regularly review which organisations you support, it may be worth keeping a log of when your donations start and end.
6. Not leaving legacies
Remember that you can write charitable donations into your will and they will be immediately exempt from IHT, this is a great strategy for reducing your estate after your death. However, it is important to keep this updated with the right charity information, as well as the right amount.
If you find yourself in need of a will review, or maybe you still haven’t written one, Will Aid Month offers the chance to have your will completed by a professional in return for a voluntary charity donation.
For further help with estate planning and giving money to good causes, get in touch.
The Financial Conduct Authority does not regulate Estate Planning