3 ways to increase the joy of giving

How often do you support good causes through raffles, cash donations and other fundraisers? These efforts not only have an important benefit to our local and national third sector organisations, but for us individually, it can provide a great sense of well-being.

Studies show that charitable giving doesn’t just benefit the organisations we help. It activates the ‘reward centre’ in our brains, it can improve life satisfaction, increase happiness and reduce stress.

Despite all these benefits, our gifts are often not very tax efficient. Charities can benefit so much more with help from the taxman, after a little bit of planning.

Most people will have heard of Gift Aid – this is where you declare that you’re a taxpayer by ticking a couple of boxes and providing your name and address, then the charity can claim an additional 25% from HMRC.

Higher rate taxpayers may claim additional tax relief through their tax return, although your chosen charity will not benefit directly from this high rate relief.

So how can we improve the way we help others? Here are three possible considerations.

Give As You Earn

Give As You Earn (GAYE) is a really efficient way to benefit from tax advantages through your employer. In fact, some employers might even match what you donate, meaning even more money for your important causes.

For example, Standard Life offers a superb GAYE scheme for its employees where contributions are matched up to a maximum each month. Donations are taken straight from gross salary, which means for a standard rate taxpayer, a donation of £50 means a reduction in net salary of only £40. Add Standard Life’s matching contribution and the charity gets £100 whilst it costs the employee only £40.

Higher rate taxpayers would see a net reduction in pay of only £30 for the same £100 charitable contribution in such an arrangement.

GAYE schemes are facilitated by organisations like the Charities Aid Foundation and Benevity. Even if your employer is unable to offer such a scheme, you can still register as an individual and benefit from tax relief by making regular gifts by direct debit. Their websites offer loads of information about making the most of your charitable giving.

Lifetime gifting to reduce your estate

Some people become concerned about the prospect of inheritance tax as they get older. After all, there seems little joy in accumulating capital throughout life, only for it to be taxed by as much as 40% when we die.

Possibly even more important than the potential tax benefit is the concept of “giving with a warm hand” (rather than giving with a cold hand after we’ve kicked the bucket).

A lot of satisfaction can be gained by seeing the benefits of a gift whilst we’re still around to see it. Whether that’s the effect on the lives of family and friends or the benefits to charitable causes that we care about.

Either way, lifetime gifts of any amount will usually become exempt from inheritance tax, upon survival of 7 years after making the gift.

Needless to say, lifetime gifting must be balanced against keeping enough money for our own lifetime needs.

Active philanthropy

Philanthropy is not the same as charity. Charity focuses on eliminating the suffering caused by social problems, while philanthropy focuses on eliminating social problems.

And it’s not just for the rich and famous. Private philanthropy can be a much more satisfying way to provide support, because rather than making ‘passive’ cash donations to a charity, it involves a more ‘active’ role through the concept of ‘Donor Advised Giving’. You can have more of a say in how your money is used.

Check out Donor Advised Funds  on the Charities Aid Foundation website.

Summary

Much of our financial well-being comes from giving money away, rather than keeping it or spending it on ourselves. But decisions on how much to give, to whom and when can be tricky, especially with the need to balance these decisions against our own financial security.

Financial coaching can help you tackle these decisions as it’s often the emotional side of money that needs some thought, rather than product-based advice.

Whatever you choose to give, the tax advantages, psychological and societal benefits can be amazing, so it’s worth taking action, however small.

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