Maximise the benefit to your chosen Charity of your gift
A new way is emerging for higher rate tax payers wishing to maximise the benefits they pass on to their favourite charity thanks to a new type of Building Society Account.
At present two routes are open to the taxpayer wishing to make tax efficient donations out of income.
Gift Aid is direct and flexible. The donor fills up a simple form, once, declaring that they are a tax payer and the Charity is able to reclaim tax at the standard rate on the donation. For a standard rate tax payer who earns £1 (80p after tax) the Charity can claim 20p back, giving them the full benefit of the £1 earnt. However the higher rate tax payer might have only 50p remaining of the £1 they earnt (after deduction of 50% tax), and the Charity could reclaim only 20p, so they would benefit from only 70p of the £1 earnt.
For those paid through PAYE, whether employees or pensioners, a more efficient alternative is offered by Payroll Giving - if offered by the employer. The donation is removed after deduction of PAYE only and so is made at the marginal rate of tax. Our higher rate tax payer is no longer penalised.
Until now there seems to have been no way that the higher rate self employed or independant pensioner could pass on the full benefit of their contribution without a substantial donation to HMRC.
Some Building Societies have offered affinity accounts. Supporting designated charities a lower rate of interest is paid to the saver whilst a contribution of typically 1% is paid out of the Society's profits to the Charity. Donors were thus able indirectly to pass over to designated charities the full benefits of their savers' sacrificed interest. This has seemingly worked well to the benefit of local good causes: Hospices, Air Ambulances and Sports Clubs. Individual Charities have benefited to the tune of tens of thousands of pounds per year.
The Furness Building Society is promoting an extension of this model to Charities nationwide. They are prepared to work with Charities that could attract deposits of over £250,000 in the first year. Savers finding themselves with surplus funds can help their favoured Charity, providing of course that it participates, knowing that it is the Charity rather than the Revenue that will benefit from their largesse.
Schemes like this seem attractive as a relatively simple way for savers to tax efficiently help a Charity earn what could amount to a significant sum with relatively little effort.