What are the tax implications of giving to charity?

Q&A: Dominic Coyle

There are specific rules in place to ensure that charities can benefit from tax relief in relation to donated cash, assets and property.  Photograph: Getty Images/iStockphoto

There are specific rules in place to ensure that charities can benefit from tax relief in relation to donated cash, assets and property. Photograph: Getty Images/iStockphoto

 

It was reported last month that the chief executive officer of a publicly listed Irish company had donated a block of shares to a charity. Am I correct in thinking that such a gift is exempt from capital gains tax on the donor?

Is there an upper limit to such a tax-free gift to a charity? Can the gift be a property? Some older charities are “trusts” rather than companies limited by guarantee. Does this create any legal difficulties?

Mr D McC, Dublin

Charities rely heavily on donations and there are specific rules in place to ensure that they can benefit from tax relief in relation to donated cash, assets and property.

While cash is generally easier for charities to handle, and requires less administration, there is nothing stopping a person choosing instead to donate shares in a listed company, or indeed physical property.

The rules governing such charitable giving are set down in section 848A of the Taxes Consolidation Act 1997. The most recent amendment of this regime was in the 2013 Finance Act.

Following that, the position is that an individual may engage in tax-efficient gifting to an “approved charity” as long as the donation exceeds €250 in any given year.

Yes, there are upper limits but they are fairly generous. As a general rule, the upper limit on charitable gifting is €1 million per tax year. If a person is connected to the charity involved, a separate limit of 10 per cent of their income is imposed.

Straightforward

Where cash is involved, the relief is straightforward – income tax relief. Where, before 2013, income tax relief was available at a taxpayer’s marginal rate, a “blended” 31 per cent rate now applies.

With gifts of shares, the donor can choose either income tax relief or CGT relief. The former will likely deliver a greater return for the charity but leave the donor with a potential capital gains tax liability; the latter means the donor has no tax liability and the benefit to the charity is the market value of the shares at the time of donation.

In relation to physical property, a donation is deemed to be at the price originally paid, creating no tax liability for the donor. However, the value to the charity is the market value of the property. They can even sell the property without tax liability as long as any proceeds are used for the approved charitable purposes of the organisation.

So, if you paid €200,000 for a house and handed it over to a charity years later when it was worth, say, €350,000, the donation is deemed to be €200,000 (plus any costs associated with the purchase). The charity gets an asset worth €350,000.

Whichever option you choose, there is a certain amount of paperwork involved as Revenue clearly wants to avoid any abuse of the scheme, but it is not onerous.

Finally, in relation to who is eligible to receive donations benefiting from tax relief, the Revenue has a list of “authorised charities” that can benefit from the scheme. It is available on the Revenue website and numbers more than 2,450.

Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice

Charities rely heavily on donations and there are specific rules in place to ensure that they can benefit from tax relief in relation to donated cash, assets and property.

While cash is generally easier for charities to handle, and requires less administration, there is nothing stopping a person choosing instead to donate shares in a listed company, or indeed physical property.

The rules governing such charitable giving are set down in section 848A of the Taxes Consolidation Act 1997. The most recent amendment of this regime was in the 2013 Finance Act.

Following that, the position is that an individual may engage in tax efficient gifting to an “approved charity” as long as the donation exceeds €250 in any given year.

Yes, there are upper limits but they are fairly generous. As a general rule, the upper limit on charitable gifting is €1 million per tax year. If a person is connected to the charity involved, a separate limit of 10 per cent of their income is imposed.

Straightforward

Where cash is involved, the relief is straightforward – income tax relief. Where, before 2013, income tax relief was available at a taxpayer’s marginal rate, a “blended” 31 per cent rate now applies.

With gifts of shares, the donor can choose either income tax relief or CGT relief. The former will likely deliver a greater return for the charity but leave the donor with a potential capital gains tax liability; the latter means the donor has no tax liability and the benefit to the charity is the market value of the shares at the time of donation.

In relation to physical property, a donation is deemed to be at the price originally paid, creating no tax liability for the donor. However, the value to the charity is the market value of the property. They can even sell the property without tax liability as long as any proceeds are used for the approved charitable purposes of the organisation.

So, if you paid €200,000 for a house and handed it over to a charity years later when it was worth, say, €350,000, the donation is deemed to be €200,000 (plus any costs associated with the purchase). The charity gets an asset worth €350,000.

Whichever option you choose, there is a certain amount of paperwork involved as Revenue clearly wants to avoid any abuse of the scheme, but it is not onerous.

Finally, in relation to who is eligible to receive donations benefiting from tax relief, the Revenue has a list of “authorised charities” that can benefit from the scheme. It is available on the Revenue website and numbers more than 2,450.

Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
GO BACK
Error Image
The account details entered are not currently associated with an Irish Times subscription. Please subscribe to sign in to comment.
Comment Sign In

Forgot password?
The Irish Times Logo
Thank you
You should receive instructions for resetting your password. When you have reset your password, you can Sign In.
The Irish Times Logo
Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.
Screen Name Selection

Hello

Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
Forgot Password
Please enter your email address so we can send you a link to reset your password.

Sign In

Your Comments
We reserve the right to remove any content at any time from this Community, including without limitation if it violates the Community Standards. We ask that you report content that you in good faith believe violates the above rules by clicking the Flag link next to the offending comment or by filling out this form. New comments are only accepted for 3 days from the date of publication.