General Fundraising

Share and share alike

Although the donation of shares has recently been the subject of some less than complimentary press, it is still one of the best kept secrets of Gordon Brown’s tax-effective giving incentives, Barry Gower believes.

While gift aid gets the lion’s share of publicity because it constitutes the biggest portion of tax paid back, there is still a role to be played by the three other components: payroll-giving, legacies and donation of shares. In this article, we will look at how the donation of shares works and how it can be used as a fundraising tool.

Giving over
A donation of shares is not a donation of money. There is no cash benefit to the recipient charity and so there is no opportunity to recover gift aid. It is still a valuable donation, however, which (provided the charity‘s rules do not prohibit this type of gift), can make a valuable contribution.

This particular initiative of the Chancellor’s is part of an incentive to sweep up the small parcels of shares arising from the major privatisation issues of the 1980s and 1990s, as well as any shares that people have accumulated over the years, but are not managing – a sort of car boot sale for shares, but with tax relief.

A little relief
If an individual donates listed shares to a registered charity, then the total value of the shares at the time of donation, irrespective of what the shares originally cost, will be allowed as tax relief.

This is the scheme in its simplest form and there will be adjustments for selling cost and other factors. This is best illustrated by an example, taken from the HMRC website:

Angela owns 5,000 shares in ABC plc, a company quoted on the London Stock Exchange. The shares are given to a charity when they are worth £10 each. A broker’s fee of £50 is charged for handling the transaction. As a token of gratitude, the charity gives the donor tickets to an event worth £500.

The deduction that the donor can make is
The value of the shares	£50,000
Plus the broker’s fee	£50
	£50,050
Less the value of the benefit received	£500
Tax relief	£49,550

In this case, the donor makes a donation of £50,000 and the cost to her is £450 (£50,000 – £49,550).

Right move?
The question arises whether it is not better to sell the shares and donate the money under gift aid. In this case, the charity would benefit by the extra 28 per cent and the donor, if a high rate taxpayer, would receive tax relief of 23 per cent of the donation. The decision is dependent on the individual’s circumstances and is illustrated by another example based on HMRC’s website.

Paula is a higher rate taxpayer and has shares worth £100,000. If she sells them, she would make a net gain of £25,000, after all reliefs and allowances, and is liable to capital gains tax.

Option A: Paula sells the shares and gives the proceeds to charity under gift aid
Gross proceeds of sale of shares	£100,000
Less capital gains charge (£25,000 @ 40%)	£10,000
Net proceeds after tax	£90,000

Under gift aid, the charity can recover the amount of the donation multiplied by 22/78.

If Paula gives the £90,000 to a charity under gift aid, the charity can reclaim £90,000 x 22/78 = £25,384. When this is added to the gift, the charity receives in total £90,000 + £25,384 = £115,384.

Paula claims tax relief at the difference between the basic rate (22%) and the higher rate (40%) on the gross donation. This equates to 18% x £115,384 = £20,769. So, the gift has cost her £100,000 – £20,769 = £79,231.

Option B: Paula gives the shares to charity
The charity receives shares to sell or retain as investments	£100,000
Paula gets tax relief on £100,000 at the higher rate of tax (40%)	£40,000
The gift has cost Paula £100,000 – £40,000 = £60,000

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