As the first National Giving Week comes to an end today, research suggests that individual gifts to charity are falling even though people are getting wealthier. On average, households spend three times as much on tobacco, and 3? times as much on alcohol, as they spend on charitable donations, according to the Charities Aid Foundation (CAF).
But although individual gifts are falling, people are now making use of sophisticated methods available to give to charity efficiently, and overall charitable donations have increased in the past couple of years. In 2002 ?7.3bn was donated in the UK compared with ?6.9bn the year before, taking giving levels back to those of 10 years ago.
Tax-efficient ways of giving such as Give As You Earn, affinity cards, legacies and charitable trusts are all growing in popularity, and charities are trying to persuade more donors to choose these methods. There is certainly plenty of scope for persuasion, because only one in three donors gives tax-efficiently, according to CAF.
Exploiting the tax breaks available on charitable donations benefits both the charity and the giver. According to Charity Trends 2004, the ?1.1bn government subsidy on tax-efficient charitable giving last year included ?512m paid back to charities, ?240m paid back to higher-rate taxpayers and ?25m of relief on payroll giving.
CAF says that, if half the current ?5bn given to charity without using tax-efficient methods were converted, it would attract ?500m in further tax relief.
Cathy Pharaoh, CAF's director of research, says charities need to work harder to get donors to give more tax-efficiently: ?It's up to charities to find even more powerful ways of persuading people of the value of their work,? she says.
Pharaoh suggests that wealthier individuals merit particular attention. Last year the UK's 3.1m higher-rate taxpayers, 11 per cent of all taxpayers, gave about ?1.2bn tax-effectively. While this figure excludes giving through foundations, it comes out at less than ?400 each during the whole of 2003.
And normal giving by the richest 30 people in the UK only accounts for about 1.2 per cent of their wealth. This compares with 13 per cent among the very wealthy in the US.
Charitable giving is far more sophisticated in the States, where wealthy individuals often set up private foundations to fund charitable projects. According to The Foundation Center, a New York group founded in 1956 to promote philanthropy, there were more than 56,000 private foundations with assets of $400bn in the US in 2001, roughly double the number a decade ago.
The UK's wealthy may be starting to move in the same direction, with high-profile business people garnering publicity for their charitable giving. Dame Anita Roddick, the founder of The Body Shop, the campaigning cosmetics group, recently made a ?1m donation to Amnesty International.
Stuart Rose, recently appointed as Marks and Spencer chief executive, diverted part of his bonus to a charitable trust.
Charitable trusts have various advantages both for investors and the charities benefiting, and have generous capital and income tax breaks associated with them. Trusts must be for a general charitable purpose or area, rather than a specific charity, and must generate ?1,000 income a year. They can be set up during the donor's lifetime or under the terms of a will.
According to Keith Lawrence, director of the trusts and estates department at accountants Moore Stephens, the Charities Bill due to be enacted next March is expected to make investing in charitable trusts even more appealing. ?It will widen the eligible purposes of charitable trusts,? Lawrence says.
Regular giving in any form is a huge advantage for charities in planning their cash flow. Charities are also able to claim Gift Aid on any donations, not just from a trust, as long as the donor signs the required documentation.
The Gift Aid scheme means that charities can claim back 28p for every ?1 donated. Higher rate taxpayers can also claim 23p for every ?1 given the difference between the higher and basic rates.
Since April 2003, higher rate taxpayers have been able to claim this in their tax return for the previous year, rather than wait until they complete the return for the year the gift was made.
Payroll giving is even more tax-efficient. Since the donation is made from an employee's salary before it is taxed, a monthly gift of ?20 will cost a higher rate taxpayer only ?12, and a basic rate taxpayer ?15.60.
Give As You Earn can also be used by pensioners who receive a pension through PAYE, although employers or pension providers must have a payroll-giving scheme in place.
Other tax-efficient ways of donating include setting up a charity account. CAF, for example, offers an account on which it charges administration fees of 4 per cent. Individuals make donations into the account and CAF adds the tax they recover to it. Donors then use their CAF cheque book to make gifts to their chosen charities.
For a one-off gift, donors could consider giving shares. Since April 2000, these, with land and buildings, have been eligible for income and capital gains tax relief when given to charity.
For a higher-rate taxpayer, a gift of ?1,000 in listed shares could reduce income tax by ?400. Income tax relief equal to the market value of the shares on the day the gift is made can be claimed, as well as any associated costs such as brokers' fees.
No capital gains tax is payable on any increase in value, but a loss cannot be used to offset a CGT liability.
?If you have shares that have a large CGT liability, you may be better off giving these directly to charity than selling them yourself, paying the tax and donating the proceeds,? CAF points out.
Finally, charitable legacies donations under a will are paid before inheritance tax is deducted, and can therefore reduce the taxable estate for heirs.
CAF: www.allaboutgiving.org 01732 520 050
