Social Investment Tax Relief (SITR) came in on 6th April 2014.
Individuals making an eligible investment at any time from 6 April 2014 can deduct 30% of the cost of their investment from their income tax liability for 2014/15 (or the relevant later year in which the investment is made). The minimum period of investment is 3 years.
The income tax and capital gain tax reliefs provide a substantial incentive for investors. To make sure new investment is directed to the organisations which need it most and to meet EU regulations, the investment and the organisation receiving it must meet certain criteria.
Organisations must have a defined and regulated social purpose. Charities, community interest companies or community benefit societies carrying out a qualifying trade, with fewer than 500 employees and gross assets of no more than £15 million may be eligible.
The tax relief is available on unsecured loans as well as shares.
So basically, if you are a basic rate tax payer using SITR will be better than Gift Aid.
Not only do you get the tax relief but if you give a loan it will be repaid (after 3 years).
Gift Aid donations are regarded as having basic rate tax deducted by the donor. Charities or CASCs take your donation – which is money you’ve already paid tax on – and reclaim the basic rate tax from HM Revenue & Customs (HMRC) on its ‘gross’ equivalent – the amount before basic rate tax was deducted.
Basic rate tax is 20 per cent, so this means that if you give £10 using Gift Aid, it’s worth £12.50 to the charity.
A Gift Aid declaration must include:
your full name
your home address
the name of the charity
details of your donation, and it should say that it’s a Gift Aid donation
If you pay higher rate tax, you can claim the difference between the higher rate of tax 40 and/or 45 per cent and the basic rate of tax 20 per cent on the total ‘gross’ value of your donation to the charity or CASC.
For example, if you donate £100, the total value of your donation to the charity is £125 – so you can claim back:
£25 – if you pay tax at 40 per cent (£125 × 20%)
£31.25 – if you pay tax at 45 per cent (£125 × 20%) plus (£125 × 5%)
You can make this claim on your Self Assessment tax return
If you are a higher rate tax payer donations made in 2013/14 will save tax at 45 percent, but in 2012/13 the rate was 50 per cent.
You can ask for Gift Aid donations to be treated as being paid in the previous tax year if you paid enough tax that year to cover both any Gift Aid gifts you made that year and the ones you want to backdate.
So if you want to donate now (before the end of the tax year) you could claim back extra tax by carrying it back into the previous tax year.
ONE OF THE UK’s largest charities was acting as a front for a tax avoidance scheme which abused Gift Aid incentives in order to help donors avoid £46m in tax.
The Cup Trust, a registered charity, raised around £176m over two years from 2010 – more than the Royal Society for the Protection of Birds, the British Heart Foundation and the Salvation Army – yet only £55,000 was put towards its stated cause of “improving the lives of young children and adults”.
For example, someone donating £1m to the Cup Trust could expect to recoup most of their money and still be entitled to between £250,000 and £375,000.The Cup Trust – which has not acted illegally – would purchase huge annual quantities of gilts, or government bonds. Those bonds were then reportedly sold on for a nominal sum through third parties to investors. The investors then sold them on at market value and donated the proceeds to the charity.
The head of Britain’s charity regulator will be hauled before MPs next month to explain how wealthy investors were able to use a charity scam to avoid £46 million in tax.
William Shawcross, the new head of the Charity Commission, will be questioned by the Public Accounts Committee about the Cup Trust, a charity exposed by The Times yesterday as a front for massive tax avoidance. MPs are also expected to ask him about other examples of charity rules being abused for tax purposes.