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How charity can begin at home.

Byline: Ros Harwood, Head Of Charities Group, Dickinson Dees Law Firm

It is said that there are only two things that are certain in life ( death and taxes! That is certainly true. You live and are taxed. You die and are taxed.

So far as death is concerned, there is very little anyone can do to avoid that. So far as taxes are concerned, we seem to spend our lives thinking of ways to alleviate the burden. There are many well-rehearsed tax-planning schemes in existence, which do the job very nicely, but there is one that is often forgotten about. It not only reduces your lifetime tax bill but also saves your estate inheritance tax (IHT) when you die. What is more, if you want to, you can live forever! Perhaps that is an overstatement. More accurately, your name can live forever.

What am I referring to? I am referring to setting up your own charity.

The advantages of setting up your own charity during your lifetime are numerous. Not only are there financial benefits for you, your charity will benefit as well.

* Gift Aid

Provided you are a taxpayer, any donation you make to your charity is uplifted by the amount of basic rate tax on your gift. Therefore, if you give pounds 100 to the charity using Gift Aid in the tax year 2005/2006 that gift is worth pounds 128.20 to your charity. Subject to a few rules, you can give any amount to your charity, either on a regular basis or by a one-off payment and your charity can reclaim the tax.

There is also a benefit for you if you are a higher rate taxpayer, as you will be able to claim a relief on the difference between the basic rate (22pc) and higher rate (40pc) of tax. This means that on a gift of pounds 1000, you can claim higher rate relief of pounds 50.77 (pounds 1,282.05 at 18pc).

It is not only you who can benefit. Your family and friends will also benefit to the extent that they can donate to your charity as well.

* Allowances

When calculating any entitlement you may have to the age-related personal allowance or the married couple's allowance, the gross amount of any Gift Aid donations you make will reduce the level of your income.

* Family company

Similarly, a family business could use Gift Aid to make donations to the charity. The full amount of any such gift will reduce the taxable profits of the business, and in turn reduce the company's corporation tax bill.

There is a limit on the benefit that a close company (one under the control of five people or lower) can receive from the charity in return for the Gift Aid payment.

* Gift of Shares, Land and Buildings

In simple terms, you can claim tax relief if you give, or sell at less than market value, any qualifying investments to a UK charity. There are various types of qualifying investments, including shares and securities listed on the UK stock exchange or on recognised foreign stock exchanges, authorised unit trust shares, shares in a UK OEIC and an interest in land or buildings.

The relief to you is the market value of the gift plus incidental costs less any disposal proceeds.

* Capital Gains Tax

You will not be liable to Capital Gains Tax if you make a gift of assets, such as land or stocks and shares to the charity, even if the asset has increased in value since you acquired it.

* Inheritance Tax

Outright gifts and bequests to the charity would be completely free of IHT. Therefore, you could leave either a specific amount or even the residue of your estate under the terms of your will to the charity, and that part of your estate will not attract IHT.

How to set up a charity

You can either set up a charity during your lifetime or you can set up one under the terms of your will, which will become effective on your death. The advantage of setting one up during your life is that you can take advantage of the lifetime tax reliefs mentioned above.

Another advantage of setting up a lifetime charity is that you can be a trustee and during your lifetime can have certain powers as the founder of the charity.

For example, a new trustee could only be appointed with your prior consent and any terms of the charity's governing document could only be amended with your prior consent.

Of course, there are legal requirements which need to be followed in establishing a charity and running it.

Charity trustees also have legal duties and responsibilities. I would suggest however that the benefits far outweigh the burdens.

Charities can be set up in various ways. Historically, most charities were established by way of trust. More often than not, charities are set up as companies today, as this gives an element of limited liability for the charity trustees. As a rule of thumb, if a charity is to be a grant making charity, as opposed to a service provider, the risks to which the trustees are exposed should be minimal, and a trust will suffice. Otherwise, I would generally recommend setting up a charitable company.

The objects of a charity can be as wide or as narrow as you like, provided they are objects which are charitable at law.

Any new charity, with an annual income of more than pounds 1,000 will have to be registered with the Charity Commission. With the right advice, this should not be a lengthy process.

Finally, the name of the charity is your choice (subject to there being no existing charity with the same or similar name).

So not only can you reduce lifetime tax and IHT by setting up a charity, you can also benefit the community by supporting a cause which is close to your heart.
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Copyright 2006 Gale, Cengage Learning. All rights reserved.

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Title Annotation:News Tees Pride
Publication:Evening Gazette (Middlesbrough, England)
Date:Mar 20, 2006
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