The Art of Green Finance

Almost 60% of adults in UK give to charity. This figure is significantly lower than the highs of 80% of adults giving to charity seen in the mid- 2,010s and reflects a general trend in fewer adults donating to charity since this time, as well as the impact of Covid-19 and the cost of living crisis. This means that charities are now more reliant on wealthier individuals who can continue to afford to donate to charity in the current difficult economic times.

For individuals who can afford to give money to charity, there may be mental health benefits in doing so. Research suggests that charitable giving makes us happier. But, this is far from the main reason that people donate to charity. For those that donate, the number one reason is that people feel that it is the right thing to do.

To maximise the mental health benefits of giving to charity, try two techniques: Firstly, look forward to giving. For example, if you have a regular direct debit to a charity, make a note in your diary or calendar that this donation will be going to charity the day before it goes. If you are a Starling Bank customer, upcoming direct debits are displayed on the app and this can serve as a reminder to anticipate the donation, or use an online calendar such as teamup. Secondly, keep tabs on what your chosen charity is doing. Sign up for their newsletter, or if you are wary of newsletters and possible requests for increased donations, then make a note to check their website at regular intervals or consider subscribing to their social media (A note of caution: some charity social media feeds contain distressing images. Don’t feel bad about unsubscribing if these images are doing more harm than good to your mental health). Although the mental health benefits of giving may not be the main reason that you give to charity, feeling good about giving and seeing the benefits of giving may be the things that keep you donating regularly.

And, regular donations matter. On average, people who set up regular donations give almost 50% more to charity annually. Of course, there are exceptions to this, for example, if you work in an industry where you recieve a bonus, you might consider giving a proportion of your bonus and therefore favour an annual donation.

For those who can’t afford to donate money to charity (and if you are in debt or have no emergency savings, you probably shouldn’t be donating money to charity, especially not on a regular basis), you can get the same or greater mental health benifits by volunteering time. Volunteering time may also have physical health benifits, particularly for older volunteers.

For wealthier people that give to charity, the UK tax system means that some people may be able to supercharge their donations at no extra cost to themselves. This applies to those that pay higher rates of tax and is due to the slightly complicated way that gift aid works.

Making use of Gift Aid.

Gift aid was introduced by Sir John Major in 1990 when he was Chancellor of the Exchequor and revised by Gordon Brown in 2000 when he was Chancellor to make the scheme more generous. Gift aid has meant that charities have recieved billions of additional revenue in the intervening time; at least £60 billion extra up until 2015. Gift aid now accounts for an additional £6 billion per year passing to charities according to the most recent government figures.

Most people who have given to charity will be familiar with the question “are you a tax-payer” and may have seen the Gift Aid form that tax-payers are asked to fill out. In fact, it’s slightly more complicated than this. Your donations will qualify as long as they are not more than 4 times the amount you have paid in tax for that year. If your donations are more than 4 times this amount, you may find yourself liable for a tax charge at the end of the financial year. So, if you pay very little tax, be wary of simply signing a gift aid form.

At the other end of the income scale, higher and additional rate tax-payers can claim back tax on charitable donations. This is slightly easier if you make regualar donations as you can simply calculate the amount of tax relief due using an online calculator and reclaim by via a personal tax account; this is then also applied to subsequent years. However, if you give a variable amount to charity, or if you increase your donations year on year, you will need to keep a record of charitable giving and update the tax relief you are eligible for each tax year. If you do a self-assessment tax return, tax relief can be claimed via this route.

This is where the supercharging comes in. A higher tax payer that plans to donate 1% of net income, for example £500 per annum, can claim back £125 in tax relief and has, after this, effectively only donated £375 or 0.75% of net income. So, you could infact donate more to account for this, for example, donate £665 and claim back £166 in tax relief. The donation has effectively cost you 1% of net income but the charity gets £665 as a donation up front. In addition, the charity can claim an additional £166 from HMRC. Your donation equivalent of net 1% of your income (£500 in this example) results in a total of £832 going to charity. Note, that additional rate tax payers can claim back more and therefore supercharge their donations more accordingly.

So, if you plan to donate a percentage of your net income, use a gift aid calculator to calculate how much tax relief you could claim and add this to your donation up-front to supercharge your donations. Next, make sure you reclaim via your personal tax account or self assessment. Then set a reminder in your calendar to update amounts each year.

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