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Share-giving
If you think that donating funds for charity by giving shares sounds complicated, probably is complicated, and that people won't go for it — think again. Share giving is now one of the most tax-effective ways to give, and some charities are already reaping the considerable rewards to be gained.
At Tarnside Consulting we recognised the benefits of share giving some time ago and have been promoting them both with our own clients and other charities who come to us for advice. The results speak for themselves: Abbeyfield Ilkley has received a total of £200,000 in gifts of shares in the past year, and — after following our advice — the National Trust has just been given a thumping donation of £500,000 in shares from a single donor.
Since the April Budget, people who give shares to a charity receive a 'double whammy' of tax benefits, making the gift of shares the most tax-effective way for individuals to give to a charity. No wonder the charities we work with have seen the size of personal gifts increase dramatically when individuals give them shares. A couple of donors have been so delighted at being able to 'beat the Inland Revenue' that they have become positive evangelists for share giving, to the immense benefit of the charity.
I was therefore amazed to discover at the recent ICFM North West conference just how few charities — ranging from the small regional to the national household names — are using this invaluable tool, especially as a MORI survey conducted for the Stock Exchange published in September showed that 25% of the adult population now owns shares (up from 20% in 1997).
How Share Giving Works (or 'The Double Whammy Effect')
As always, people who give shares to a charity can do so and not attract any capital gains tax — Whammy One.
However, since this year's budget, the donors of shares can also reduce their taxable income by the full market value of the shares that they give — Whammy Two.
The result of this is that the net cost to a donor is only a fraction of the gift that a charity actually receives.
For Example
Ben E. Factor has an annual income of £100,000, and gives shares to the value of £20,000 to his favourite charity. The shares originally cost him £5,000.
From the Inland Revenue's point of view, the disposal would be deemed to have taken place at £5,000 and therefore the gift does not act as either a gain or a loss for Capital Gains Tax (CGT) purposes.
For income tax purposes, Ben's annual income will also be reduced by £20,000 (the value of the shares). An effective tax rate of 40% will reduce his liability for income tax for the year by £8,000.
If Ben were instead to sell the shares he would be taxed on the capital gain (the sale price less the purchase price — £15,000) at 40% (£6,000) assuming he had already used his capital gains allowance, making the net amount they would receive being £14,000.
The real cost of the gift to Ben is therefore only £6,000 (£14,000 minus £8,000)!
Things can even be arranged so that giving shares costs the
donor nothing, and the donor gets paid by the taxman for being
generous. Still sound too good to be true?
It works like this:
Instead of making an outright gift of the shares to the charity, the donor can sell the shares to the charity below their market price. The difference between the market value and the sale price of the shares to the charity is then used when calculating income tax liability. If we use the same example again:
Ben E. Factor this time sells the shares with the value of £20,000 to his favourite charity for £5,000 (the originally cost of the shares).
Again, from the Inland Revenue point of view the disposal does not act as either a gain or a loss for Capital Gains Tax (CGT) purposes. For income tax purposes, Ben's annual income will be reduced by £15,000 (the difference between the market value and the sale price — £20,000 less £5,000). At an effective tax rate of 40% this will reduce his liability for income tax for the year by £6,000.
Arguably giving the shares has cost nothing, as Ben has received his original stake back. Furthermore the taxman will also pay him £6,000 for being so generous and the charity, meanwhile has received a £15,000 donation.
Mechanics of Giving
If the shares are held by a stockbroker or investment manager on a nominee account the only action required by the donor will be a letter of instruction to the broker / manager.
Alternatively, the donor should obtain a CREST / stock transfer form from their stockbroker / advisor and simply transfer the shares directly into the nominee account of the charity. A letter from the donor requesting the transfer of shares to the charity should be attached to the transfer form.
The important bits of information a donor needs are the charities full nominee name and account number. A request to donor to inform the charity of the donation can also be helpful.
So what is the Catch?
There is no catch. Share giving, however, is not some sort of magic wand that will produce new millions. The professional fundraiser would be foolish to regard it as a panacea. It is something new, and as such, people will be wary of it.
The real skill in making share giving work for your cause relies on the charity's ability to treat supporters as people rather than numbers. If you want larger donations, it is your soft skills rather than your software that you need to develop. It is a process of enabling, empowering and teambuilding, which should be facilitated rather than led by the professional fundraiser. However, whilst the vital importance of treating donors as individuals rather than records in a database is one of my fervent beliefs, it is perhaps a subject for another article.
Giving shares is now the most tax effective way of giving for an individual. A quarter of the adult population now owns shares and it seems likely that these people are amongst the wealthiest of our society. Why then are so few charitable fundraisers talking to them about gifts of shares? From our experience, promoting share giving has led to a distinct and substantial increase in the size of personal donations and there is no reason why it cannot be used to good effect by all charities.
If your charity does not have a planned strategy for promoting share giving, get thinking!
Further information can be obtained from:
Inland Revenue Charities, St John's House,
Merton Rd, BOOTLE, Merseyside L69 9BB
Tel: 0151 472 6046 (Giving Shares) Fax: 0151 472 6034
The Charities Aid Foundation is currently preparing a publication on the subject.
Alternatively you can email Patrick
Boggon at Tarnside Consulting or call him on 015395 68953.
(September 2000)