Gifts of shares and land

Where assets other than cash are donated to a charity, the disposal is treated as having been made on a no gain, no loss basis for capital gains tax purposes. This can be an effective relief for the taxpayer because they are not subject to capital gains tax on any chargeable gain arising on the disposal of the asset. This is true of all classes of asset. Qualifying investments and land, however, are also eligible for the following further relief.

Qualifying investments include:

• shares or securities which are listed or dealt in on a recognised stock exchange;

• units in an authorised unit trust;

• shares in an open-ended investment company; and

• an interest in some offshore funds.

The Finance Act 2002 extends this relief to cover freehold or leasehold interests in land situated in the UK. Please note that additional conditions apply for this relief including the provision that the charity must certify that it has agreed to accept the property.

The amount of relief which is allowable as a deduction against income, thereby generating tax relief, is the market value of the qualifying investments at the date of the gift, less any consideration given by the charity, plus any incidental costs of making the gift. Please note that the relief is reduced if the donor receives any benefit as a result of the disposal.

For example, you give a registered charity shares worth £10,000. The cost of the shares to you for capital gains tax purposes is £0. If you had sold the shares yourself, you would have received £10,000 but paid £4000 capital gains tax (at 40% and assuming no taper relief or annual exemption), and been left with £6000.

(Taper relief is a relief for capital gains tax which varies with the number of years that has passed since the commencement of ownership.)

By giving the shares to the charity instead, you would receive the following tax reliefs.

So in this case, the total saving is £8000. This means that a gift with an effective after-tax cost to you of £2000 would be worth £10,000 to the charity, and that is the size of the gift you would be recognised for. Unlike Gift Aid cash donations, all the tax relief comes to you, the donor.

This example, which ignores any broker's fees, gives the maximum tax relief.

For another example, suppose the shares are now worth £10,000 but cost you £5000. You would save capital gains tax on the £5000 gain - that is, £2000. Also, as in the first example, you would benefit by £4000 income tax relief on the whole value of the gift. So in this case, the total tax relief is £6000 and the net cost to you would be £4000.

This tax relief is available for shares and securities listed on the UK Stock Market, the Alternative Investment Market, and recognized stock exchanges overseas. It is also available for units in a UK unit trust, shares in a UK open-ended investment company (OEIC), and some similar foreign investments.

It is also possible to benefit both the charity and the donor by selling shares or land at an undervalue. The amount of the undervalue is treated as the amount of the gift and the tax reliefs described above that can apply to this amount.

For some affluent donors, giving shares rather than cash could allow them to be more generous, because of the higher tax relief. You may have shares in a company or sector that is no longer part of your main portfolio and be willing to donate them to a charity. You may have a significant holding of shares and want to support a particular charity at a time when your cash flow might not support a cash gift.

You could also consider this if you have received windfall shares (as a result of a bank or building society being floated on the stock market). This could allow you to make a donation to a favourite charity which you could not otherwise afford.

You may have small shareholdings that may cost more to sell than they are worth, yet you still have to fill in parts of a self-assessment tax return for these investments.

If you have small shareholdings or want someone else to manage your donations, there are two options. You could donate the shares (at least £500) to the Charities Aid Foundation, which is a registered charity. For a small fee (usually 1% of the value of the gift with a minimum charge of £40), they will then distribute the proceeds to one or more registered charities chosen by you.

Another approach is to give the shares to Sharegift. This is a registered charity that specialises in helping donors give shares to charity. They accept any number of shares, however small, and collect them until there are enough to sell. They make donations to charities that have been suggested by share donors. Sharegift does not charge for this service.

The process for giving shares directly to a charity

1. If your shares are held in paper form (share certificates), you need a stock transfer form. Either the charity or your broker or the company registrar will provide this. The details of the registrar will be on the share certificate, dividend voucher, annual report or website.

   When you have filled in the form, send it to the company registrar with your share certificates. You should make sure you include the full name and address of the charity. The company will then issue a new share certificate in the name of the charity.

2. If your shares are held in a nominee account and the charity has a nominee account, you must have the name and contact details of the person who handles the nominee account, the account details and the charity name and registration number.

   You should then instruct your broker to arrange for your shares to be transferred into the charity's nominee account.

   If the charity does not have a nominee account, you will have to arrange to withdraw your shares from your nominee account and for a share certificate to be produced. Your broker or adviser can arrange this. There may be a charge, but you can include any fees or charges in the cost of the donation and receive tax relief on this.

3. If the charity asks you to sell the shares on their behalf, you must make sure you have proof that you have given shares and not the proceeds from the sale of the shares. You must keep written evidence (a signed and dated letter of your intentions) that shows you have agreed to give shares and the charity has then asked you to sell the shares on their behalf. The date of the sale must be later than the date of the gift. Without the evidence you may be treated as having made the sale on your own account. As a result, you would not be eligible for income tax relief and may also have to pay capital gains tax (although the donation could be made by Gift Aid).

4. If the charity offers a gift in return (for example, tickets to an event), the total value of the gift would be taken from the value of the donation before working out income tax relief.

5. HM Revenue & Customs leaflet IR178 'Giving Share and Securities to Charity' is a useful guide. The Giving Campaign and Sharegift also have literature with examples of gifts of shares.

6. You should be aware that not all charities are experienced in handling gifts of shares. They can also receive advice from these sources. The Giving Campaign has a helpful toolkit for charities.

Further to the Finance Act 2002, donors can give real property (land or buildings) and be eligible for full tax relief from income and capital gains tax. Similarly to share giving, donors are entitled to claim relief for the full market value of the property donated. As with all schemes involving income tax relief, your yearly income must be at least as much as the value of the gift to obtain the full income tax benefit. Every donor's situation will be different, because of the cost of land or building, indexation allowance (a tax allowance for capital gains purposes for the effects of inflation on assets), taper relief, business or non-business assets and so on. Clearly any or all of these may be relevant and we strongly recommend that you consult your accountant or financial adviser.