About Gifts of Shares
An alternative to giving money to your favourite charities can be the donation of shares or securities. You can donate shares to any UK, EU, Norwegian or Icelandic charity that is registered with HMRC.
This is a very tax-effective way to give and can make a significant difference to your tax bill. Giving Shares can actually cost you less than giving cash!
How does the tax relief work?
There are two types of tax relief that are potentially available when you give shares: Income Tax relief on the value of the shares and exemption from Capital Gains Tax. With the higher rates of income tax at 40% and 50% and capital gains tax at 18% (or 28% for higher rate tax payers), this can amount to a substantial tax break.
Tax relief will be given for the market value of the shares as a deduction from your income tax liability for the tax year in which the gift is made. Additionally, you may be liable for exemption from Capital Gains Tax on the increase on the value of the shares that you would have had to pay if you had simply sold them.
If you pay income tax at 20%, your income tax bill would be reduced by 20% of the value of the gift.*
If you pay income tax at 40%, your income tax bill would be reduced by 40% of the value of the gift.*
If you pay income tax at 50% your income tax bill would be reduced by 50% of the value of the gift.*
*Other influencing factors/tax liabilities may alter these figures. You should seek professional financial advice before proceeding.
How can I donate my shares?
If you decide to donate some shares to a charity, the first step that you should take is to contact the charity and tell them about your intention to do so. This will enable them to make the necessary arrangements for your gift and help the transferral go as smoothly as possible.
To transfer the shares in paper form (certificates), the process is as follows:
1) You obtain a stock transfer form from the Registrar.
2) Fill out and sign the form. (You can see a sample transfer form here)
3) Return the completed form to the Registrar of Shares with original Share Certificate.
4) The Charity will receive a new Share Certificate in their name.
If your stocks are held electronically, in either a Corporate Nominee Account (administered by the Registrar) or a Stockbrokers Nominee Account (administered by a Stockbroker), you will have to contact the Nominee in order to check their precise requirements for transferring the shares.
You must keep a dated copy of the transfer form and correspondence with the charity to establish the value of the shares when they were transferred, so you can claim the tax relief.
Can I sell the shares myself and donate the proceeds to charity?
It may be possible to sell the shares and donate the money raised to a charity of your choice. However, you need to be careful as to how you do this to make sure that you are still eligible for the tax relief. After taking financial advice, the best way to ensure that you will not be liable for Capital Gains Tax is to speak to the charity in advance about your intentions. Keep a copy of the written exchange of letters that set out the details of the gift, when it was made and that the charity have accepted the gift – these will serve as evidence for HMRC that the sale of the shares was not for your own financial gain.
Can any shares be donated to a charity?
All shares that are transferrable can be donated, but only publicly quoted shares qualify for tax relief. Examples of publicly quoted shares include shares listed on the London Stock Exchange or Alternative Investment Market Shares (AIM). For a full list of qualifying stock exchanges, please visit the HMRC website.
How can I claim the tax relief?
It is your responsibility to claim the tax relief and to keep a copy of the transfer form or letters relating to the donation in order to make the claim. You should claim the tax relief by completing the appropriate section of your self assessment tax return. If you are not sent a tax return or you want to claim relief before the end of the tax year, you should contact your local tax office for advice. You must discuss all arrangements carefully with a solicitor of financial advisor before proceeding with the sale.
You are able to donate this relief directly back to a charity of your choice through your self assessment tax return. See our page on self-assessment giving for further information.
Source: The Institute of Fundraising