Gift of Shares - Examples

Example 1

Norman is a basic rate taxpayer and has shares worth £800, which came free as part of a demutualisation. He has not made any other capital gain in the year.

Option A Norman sells the shares and gives the proceeds to the charity under Gift Aid

Gross proceeds of sale of shares                                                   £800
Capital gains charge (within annual exempt amount)                       nil
Net proceeds                                                                                £800

If Norman gives the £800 to a charity under Gift Aid, the charity can claim basic rate income tax of

£800 x 20/80 = £200

Plus Transitional Relief (until 5th April 2011) of approx. 3p for every £1 donated by Gift Aid; in this example £25.64.

When this is added to the gift, the charity receives in total

£800 + £20 + £25.64 = £1,025.64

Norman has nothing further to claim and the gift has cost him £800

Option B Norman gives the shares to charity

The charity receives shares to sell or retain as investment £800

Norman gets tax relief on £800 @ 20% £160

So, the gift has cost Norman £800 - £160 = £640.00

Example 2

Paula is a higher rate taxpayer and has shares worth £100,000. If she sells them, she would make a net gain of £25,000 after all reliefs and allowances, and liable to capital gains tax.

Option A Paula sells the shares and gives the proceeds to charity under Gift Aid.

Gross proceeds of sale of shares                           £100,000
less capital gains charge (£25,000 @ 18%)        £ 4,500
Net proceeds after tax                                          £ 95,500

Under Gift Aid, the charity can recover from [Inland Revenue] the amount of gift multiplied by the basic rate of income tax (20%)

100 minus the basic rate (80)

So, if Paula gives the £95,500 to a charity under Gift Aid, the charity can reclaim

£95,500 x 20/80 = £23,875

Plus Transitional Relief (until 5th April 2011) of approx. 3p for every £1 donated by Gift Aid; in this example £3,060.90.

When this is added to the gift, the charity receives in total

£95,500 + £23,875 + £3060.90 = £122,435.90

Paula claims tax relief at the difference between the basic rate (20%) and the higher rate (40%) on this amount less the Transitional Relief

£122,435.90 - £3,060.90 (20% x £119,375) = £23,875

So the gift has cost her

£100,000 - £23,875 = £76,125 plus the Capital Gains Tax charge of £4,500

Option B Paula gives the shares to charity

The charity receives shares to sell or retain as investments £100,000

Paula has no Capital Gains charge on the shares

Paula gets tax relief on £100,000 at the higher rate of tax (40%) £40,000

So, the gift has cost Paula £100,000 - £40,000 = £60,000

Source: based on Inland Revenue publication IR178 – Giving Shares and Securities to Charity (February 2004) rates updated April 2008