I have some queries about maximising the impact of charitable donations by an individual.
Can you confirm that if I gift a registered charity – say – €10,000 during my lifetime, they will get in the region of €13,000, a 30 per cent bonus on top of my donation. Do I have to fill in forms to do that?
In attracting that 30 per cent bonus, is there any annual upper limit or threshold for such donations to any one charity or indeed to several charities? For example, if I won the Euromillions and wished to donate, say, €50 million to one or more charities, would they still get the 30 per cent extra?
Does that 30 per cent donation bonus lapse if I donate the money in my will rather than in my lifetime? Put simply, am I maximising the benefit of my gift to a charity by donating in life rather than in a will after my death?
Mr M.F., email
Charities rely most heavily on financial support from government but that tends to be a fairly fixed sum. What is less secure but can deliver the extra amounts that allow charities to expand their programmes are private sector donations.
We have seen just recently the importance that charities place on occasional or one-off donations from members of the public in their advertising for support in the wake of the Ukraine crisis.
And you’re quite correct: how you give can make a difference to a charity.
First up, yes, there is a “bonus” available to charities on your donation in certain circumstances, which we shall return to in a minute. But it is also the case that, from the charities’ perspectives, it is better for you to give while you are still alive than to leave it in a will – if it is an either/or choice.
Inheritance
Anything that you leave to a registered charity in your will will not be subject to inheritance tax. However, the face value given to the charity is the total that they receive whereas, in lifetime giving, as you note, there can be an added financial benefit to the charity.
From the State’s point of view, they are “losing out” on the 33 per cent tax on inheritance that applies over tax-free thresholds.
The other thing to note about specific bequests and other charitable giving in wills is that there is no limit on how much a charity, or charities, can receive in this way. The limit is essentially how much you have in your estate. This is different to lifetime giving where there are limits.
So let’s get back to those rules on lifetime giving.
Lifetime giving
As long as the sum you give the charity, which alive, exceeds €250 in any tax year, the charity can normally claim tax relief on your donation. The amount of relief is 31 per cent. This is what Revenue calls a blended rate: it applies to all taxpayers regardless of whether they pay income tax at the basic rate of 20 per cent or the higher 40 per cent rate.
So, if you give €250, the charity will ultimately receive €362.32.
Essentially, the €250 you give is deemed to be 69 per cent of the final donation. You can work out the grossed up benefit for a charity of any sum by multiplying the donation by 100 and then dividing that by 69 – so, for example, a donation of €400 from you is worth 400 x 100 = 40,000 / 69 = €579.71.
In a will, that €400 donation is simply a benefit of €400 to the charity – not that it will be complaining – so you can see the difference.
In the case of the €10,000 donation that you reference in your question, the charity will benefit to the tune of €14,492.75, including the tax relief, not €13,000.
That explains why charities are so keen to sign us up to regular giving, including through street fundraising recruiters, more disparagingly known as “chuggers”.
But back to the rules, because there are more than simply setting a minimum level for tax efficient contributions. There is also a maximum, more than one, in fact.
For tax relief purposes, the absolute upper limit that anyone can give to charity in a tax year is €1 million. So, if you did win the Euromillions, you’d have to spread your donations out over many years. You would also be limited by how much tax you actually paid to Revenue in the first place, but more of that later.
And, if you have a link to the particular charity, there will be a separate maximum of 10 per cent of your income on which that charity can claim relief even below the €1 million cap.
Form-filling
You don’t benefit from this relief in the tax you pay. That used to be the case for the self-employed but that was phased out years ago. Now, only the charity benefits.
To do so, the charity first has to have registered with the Revenue Commissioners by filling out a Charitable Donations Scheme Tax Registration form. All charities would have been expected to do this: if they haven’t your money would be better used elsewhere.
They will also need to give some of your details to the Revenue. You can provide these details in one of two ways – either by filling out a one-off CHY4 form or a CHY3 form.
Both require your name, address, PPS number, the name of the charity to which you are donating, the amount – and whether you are connected to the charity.
The difference between them is that a CHY4 form covers one-off donations and a new one must be filed every year. It will ask you to state which tax year the donation relates to.
CHY3 on the other hand is an enduring power, and runs for five years, so it will ask you for the date of the first tax year in which you are donating. If you make regular donations to the same charity, it will avoid you having to fill the form each year.
Once the charity has those details, it can file a claim with Revenue for the tax relief.
If the relief exceeds the amount the donor has actually paid in income tax that year, the relief given will equal the amount of tax paid. Basically, the charity cannot get more in relief than you actually paid in tax.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dominic.coyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice
