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Donating can build a surprise nest egg
10:46am Wednesday 20th March 2013 in Business: Personal Finance
EASTER is about faith, hope and charity. Okay, it’s about chocolate eggs and a long bank holiday.
But this year, with Easter falling directly between the Budget and the end of the tax year, many people will be using the extra time to think about their financial situation.
Charity might be the last thing you can afford to spend on, but with a bit of careful planning, you may be surprised at the tax breaks av a i l - a b l e on your charitable donations.
Gift Aid is the most common way to make your donation go further. As long as you’re a UK taxpayer, charities can claim back the basic rate of tax on any donation you make, so a donation of £100 will actually be worth £125.
If you are a higher-rate taxpayer, even better. If you make a cash gift of £80, for instance, you can get higherrate tax relief of £20 so the net cost of the gift is really only £60 (although the charity will get the full £80).
When you are filling out your self-assessment form next January, you can claim this £20 back, so the more you donate during the remainder of this tax year, the more of a rebate you are accumulating for next year.
In effect, you are both saving money and donating money at the same time, and with the way the global economy is going, you may be very grateful for that tax-free nest egg this time next year, while the charity will be grateful for it now.
Where there’s a will . . .
Many people will leave money to charity in their will, but with the introduction of inheritance tax, it may actually be more cost-efficient for you to carve out a charitable allocation.
It is awful to think that your hard-earned estate will be taxed, even after you’ve gone. However, if you plan to leave money to a charity in your will, the value of your donation will be deducted from any valuation of your estate, so you can manage your inheritance tax liability long before you die.
If your estate is worth £330,000 in 2015, for instance, by leaving £1,000 to charity, you are saving your other beneficiaries from the whopping 40 per cent inheritance tax liability on all assets over the value of the tax-free limit.
Donating without money If you’re thinking: “I’d love to give more to charity but I can barely afford to make my own ends meet”, there are ways to give that don’t involve money.
Donate your old clothes, books, CDs, and bric-a-brac to your local charity shop. When you make your donation, make sure you fill out the Gift Aid form – all the money raised from your bits and pieces will also receive tax relief.
Don’t forget to keep a record of any gift you make to charity, so you can make sure both you and your charity are benefiting as much as possible from the donation.
Not only are you reducing your own tax liability, you’ll have that lovely warm feeling that comes from helping the less fortunate, and that’s what Easter is all about. That and chocolate.
Should you invest in . . . European stocks?
The eurozone deepened its double-dip recession in the past quarter, and last week’s industrial figures suggest it will continue to struggle in the first quarter of 2013.
In a press conference in early March, the European Central Bank cut its eurozone growth forecast for this year from - 0.1 per cent to - 0.9 per cent, and revised its expectations for next year to between 0 and two per cent.
So it’s hardly a surprise to hear that European stocks are not doing well at the moment.
If you are determined to buy into European stock markets, it may be wise to seek expert advice.