Considerations for the donor
Gifts of shares or property qualify for the general capital gains exemption on disposals to charity.
A loss on disposal to a charity will not be an allowable loss for the donor. In addition income tax/corporation tax relief may be available.
The amount of the income tax/corporation tax relief to be claimed by the donor is calculated as the net benefit to the charity, plus any incidental costs incurred by the donor in making the gift, less any consideration or other benefit received in consequence of giving or selling the investment. The net benefit to the charity is generally taken to mean the market value of the investment. There are differing detailed statutory tax rules for determining market value, and these vary according to the type of investment.
If the charity is subject to an obligation to any person such that:
- it is reasonable to suppose that the disposal of the qualifying investment would not have been made in the absence of the obligation
- or the obligation is connected to the charity receiving the qualifying investment or a related investment,
the market value of the qualifying investment will be reduced by the aggregate of the related liabilities of the charity resulting from the exercising of the obligation.
Individual donors are able to claim a deduction against their income assessable to income tax via their self-assessment tax return, enabling them to claim tax relief at their highest marginal rate. Corporate donors claim the tax deduction as a charge on income against the company’s taxable profits.
For individual donors the tax implications of making a gift of shares or property or, alternatively, selling the assets and then making a Gift Aid donation are very different. Under a gift of shares or property the entire tax relief is enjoyed by the donor whereas, if the assets are sold and then a Gift Aid donation is made, only the higher-rate tax relief will be enjoyed by the donor. However, the latter route may be advantageous where the asset stands at a loss, since the donor would be able to realise an allowable capital loss if the asset were sold and the proceeds applied by way of a Gift Aid donation.
Note also that when a donor gives an asset away to a charity or sells it to a charity for less than its initial cost, the donor is treated as making no gain or loss for Capital Gains Tax purposes, so will not have to pay any Capital Gains Tax.
For corporate donors there is no distinction in tax terms between a gift of assets and a Gift Aid donation.
HMRC’s guidance on considerations for donors can be found here.
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