Saturday 10 December 2016

How to maximise a charitable donation of shares

Published 03/04/2016 | 02:30

'Donations of shares are a bit more complicated than simple cash donations from a tax point of view'
'Donations of shares are a bit more complicated than simple cash donations from a tax point of view'

If you have shares in a publicly-quoted firm that you no longer have any interest in or want to pass on to someone else, you could consider gifting them to charity.

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It used to be the case that self-assessed taxpayers could claim income tax relief for themselves through their tax return when donating shares to charity, but since 2013, only charities who receive donations of cash or shares can claim the income tax relief, which is calculated by "grossing up" the value of the donation by 31pc.

However, donations of shares are a bit more complicated than simple cash donations from a tax point of view, as the final value of the donation to the charity depends on whether or not you claim capital gains tax (CGT) relief, according to Barry Flanagan, senior tax manager at Taxback.com.

If you dispose of shares and they are worth more than what you paid for them, usually you would have to pay CGT on the gain in their value, even if it's a donation, he said.

If you wanted to, you could seek an exemption from CGT under 'Section 611' tax relief for charitable donations, but this means the charity would not only be able to seek the income tax relief, but also only receive the value of the shares at the price you paid for them originally.

Say you donate shares worth €8,000 having bought them for €5,000 but you claim the CGT relief on the taxable gain of €3,000 (which could be worth around €990), the value of the shares to the charity will be deemed to be equal to the cost price, which is €5,000.

But if you choose not to claim the CGT relief, then the charity would benefit far more - to the tune of almost €11,600, in fact.

"As long as they have paid sufficient tax to cover the tax refund due to the charity, and assuming the relevant appropriate returns in support of the tax paid have been made, the charity can claim back the income tax paid on the value of the shares," said Mr Flanagan.

So as well as the full €8,000 value, the charity can claim back the income tax associated with the donation, which is nearly €3,600. You'll still have to pay the CGT, however.

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