Home

Double-bubble Gift Aid: its availability and its limitations

/ 28 January 2022

Geraint Jones

Tax law encourages donations to charity. Where the qualifying conditions (which are not very onerous) are fulfilled and the relevant paperwork signed, not only is your monetary donation topped up by 25% by the Government; the donation also serves to reduce the amount of any higher-rate or additional-rate Income Tax you pay.

Even better reliefs potentially apply where the donation is in the form of a ‘qualifying investment’ rather than in cash. In such cases, not only do you deduct the value of the donation in working out your taxable income (so that you obtain tax relief at your highest rate of tax); you also are absolved from paying Capital Gains Tax (‘CGT’) on the disposal. Thus, it will normally be more tax-efficient to give the asset to the charity than to sell the asset, pay CGT and gift the net proceeds.

In fact, it’s better even than this: it is acceptable for the charity to which the gift is offered to ask you to sell the asset on its behalf and send them the proceeds. This (provided the paperwork is in order) is treated as gift of the asset rather than of the proceeds of sale, with the Income Tax and CGT advantages outlined above.

There are a couple of caveats.

First, don’t be misled by HMRC’s guidance which says:

‘You do not have to pay tax on land, property or shares you donate to charity … You can pay less Income Tax by deducting the value of your donation from your total taxable income.’

What the guidance omits to mention is that, although the favourable CGT treatment applies to almost all chargeable assets, it is only certain specified assets whose gifting entitles you in addition to Income Tax relief. The full list is:

  • shares or securities which are listed on a recognised stock exchange or dealt in on any designated market in the United Kingdom,
  • units in an authorised unit trust,
  • shares in an open-ended investment company,
  • an interest in an offshore fund, and
  • a qualifying interest in land (broadly, a freehold or leasehold interest – or its Scottish equivalent – in UK land).

Conspicuous by their absence are, for example, unquoted shares, cryptoassets, and any kind of chattels.

A second curious anomaly is that, while it is possible to elect to ‘carry back’ Income Tax relief for a monetary donation to the tax year before that in which the donation was made, such an election is not possible in respect of relief for the gift of a ‘qualifying investment’.   Incidentally, even for a monetary donation, the carry-back provision is not without its pitfalls, as we commented on here.

One further wrinkle: if the ‘qualifying investment’ is standing at a loss for CGT purposes, it is positively disadvantageous to gift it to charity, since no loss would then be recognised. Better in that case to dispose of the asset in the normal way, crystallising the loss for use against other or subsequent gains and gift the proceeds to charity under the usual Gift Aid rules.

For more information, please get in touch with your usual BKL contact or use our enquiry form.

Geraint Jones

Partner, Private Client Tax

T +44 (0)20 8922 9354
E geraint.jones@bkl.co.uk

View Profile