Donations from UK to a US charity -- best way?

For the last two years, I've made a donation to a US charity (what the US might call a "not-for-profit" organisation which benefits from an analagous tax deductible donation for the donor like in the UK) from the UK and I've been able to do it under GiftAid (so you get the tax benefits in the UK). I've done it through my CAF Gift Aid account. CAF will check out the "charitable" status of the US organisation before giving you the go-ahead. You will have to open a CAF account. CAF are a charity. You send them a cheque for the amount you want to fund your account, and they send you a "cheque book" to write "cheques" for UK charities (or e.g. churches that benefit from the same tax treatment on donations). CAF will apply for the basic rate tax relief on your initial cash injections and credit your account when they get it. CAF take 4% of your gross donation (maybe a bit steep in some people's minds) (3% handling fee and 1% to their charity). If you are a higher-rate tax payer, you claim the higher-rate tax relief on your tax return like you would on a donation to any UK charity in the normal way. If you want to make a donation to a US organisation, you contact CAF and they start the ball rolling. You will pay a fee for the US donation (about a fiver). CAF also do regular donation schedules, but I don't know if that works for US organistions, or if you would have to pay the fixed fee each time etc. I'm sure they'd be able to tell you.

CAF are currently running a "Tell A Friend" promotion whereby the person recommending and the person being recommended get a GBP15 top-up to their accounts. If you want to open an account, I'll happily recommend you and we'll both get 15 quid!

There are similar organisations to CAF, but I cannot remember them at this point.

Allan (I am not a lawyer, nor an accountant, nor related to CAF other than as a happy customer)

Thanks a lot for that Allan! I had looked on the Inland Revenue site about the Gift Aid thing and they say:

"Can I get relief for a gift to a foreign charity?

No. Gift Aid applies only to charities established in the UK, but many foreign charities are established in the UK through branches."

But maybe the way you describe is a good way around it.

I've also thought, as I go to the US a couple of times a year, maybe I could just buy a money order at a post office on a visit to the US (they cost less than $2, even for big amounts!) and give to the charity like that. That would depend on me getting a good cash/traveller's cheque exchange rate over here though before going over there...

"Allan Gould" wrote in message news: snipped-for-privacy@nospam.freeserve.co.uk...

For the last two years, I've made a donation to a US charity (what the US might call a "not-for-profit" organisation which benefits from an analagous tax deductible donation for the donor like in the UK) from the UK and I've been able to do it under GiftAid (so you get the tax benefits in the UK). I've done it through my CAF Gift Aid account. CAF will check out the "charitable" status of the US organisation before giving you the go-ahead. You will have to open a CAF account. CAF are a charity. You send them a cheque for the amount you want to fund your account, and they send you a "cheque book" to write "cheques" for UK charities (or e.g. churches that benefit from the same tax treatment on donations). CAF will apply for the basic rate tax relief on your initial cash injections and credit your account when they get it. CAF take 4% of your gross donation (maybe a bit steep in some people's minds) (3% handling fee and 1% to their charity). If you are a higher-rate tax payer, you claim the higher-rate tax relief on your tax return like you would on a donation to any UK charity in the normal way. If you want to make a donation to a US organisation, you contact CAF and they start the ball rolling. You will pay a fee for the US donation (about a fiver). CAF also do regular donation schedules, but I don't know if that works for US organistions, or if you would have to pay the fixed fee each time etc. I'm sure they'd be able to tell you.

CAF are currently running a "Tell A Friend" promotion whereby the person recommending and the person being recommended get a GBP15 top-up to their accounts. If you want to open an account, I'll happily recommend you and we'll both get 15 quid!

There are similar organisations to CAF, but I cannot remember them at this point.

Allan (I am not a lawyer, nor an accountant, nor related to CAF other than as a happy customer)

In the UK the income tax benefits go to the charity while in the USA the tax benefits go to the donor. I don't see that as analogous. There are estate tax benefits to the donor's estate in both regimes.

Tony

In my dictionary, analagous is defined as similar

Firstly, the point I was trying to make was that donations can be made to organisations in both countries that can benefit from tax relief (which, IMHO, is 'a good thing' whether you are the donor or the recipient: the tax authorities are favouring the overall donation)

Secondly, in the scenario discussed (CAF), the (basic rate relief) income tax benefits accrue to the CAF account holder (the donor). Also any applicable UK higher-rate tax relief goes to the donor as well. I have no knowledge of the tax rules in the US, but if you state that "in the USA the tax benefits go to the donor", I would see that as analagous?

Hope this clarifies

Allan

CAF would indeed be a good (& legitimate) way round it. You are making a donation to (your own) UK charitable account (at CAF) and make the donation to the US charity out of that account (once the US organisation has been cleared by CAF).

Yes, but (assuming you are a even a basic rate tax payer) isn't an extra 28p in the pound for you (less CAF's 4%) a fairly compelling reason to use CAF (or similar?)

Allan

I do see it as analogous because (though I don't know how the USA system works in detail) the effect of both systems is that the tax man loses out on tax deducted from earnings used to fund the donation.

Whether the donor makes a gross donation from net earnings, and gets a refund of tax, or makes a net donation and the charity gets the tax refund, the effect of both systems is that the charity gets more money than the donor would have been able to spend had he not donated.

If you're going to be pedantic, get the spelling right! The word has only two As, and also two Os.

Yes, that's a good thing, and also permits an analogy to be drawn between the two systems.

If you think that, then you've misunderstood the system.

For each £78 you pay into the account, it gets topped up with £22 to make £100 which you can then donate to charities. That benefits the charities, not the donor. (Actually, with the admin slice, it's only topped up to £96).

If you think that, then you've misunderstood the system.

The idea behind it all is that the effect of Gift Aid tax relief is that the full gross earnings which fund any net donation should accrue to the charity.

In the basic rate scenario, the donor earns £100, pays £22 tax on it, and thus has £78 to give to the charity. The charity then claims those £22 back from the tax man.

If the donor is only a starting rate taxpayer, he earns £100, pays £10 tax, and thus has £90. If he gives £78 of that to charity, having made a Gift Aid declaration (slightly ill-advisedly), the charity will still claim £22 from the tax man, but the tax man will be £12 out of pocket, and indeed these £12 are in the donor's pocket, and the tax man will want them back.

If the donor is a higher rate taxpayer, he earns £100 and pays £40 tax, he gives the remaining £60 to charity *plus an extra £18 on top*, which he is now out of pocket by. The charity claims £22 from the taxman, who now has £18 left over, which the donor can reclaim, to re-imburse himself the extra £18 which did not come from the £100 he earned on behalf of the charity.

In all 3 examples the donor's £100 of gross earnings end up in the hands of the charity. No benefit accrues to the donor at all, apart, of course, from the warm feeling of having donated £100.

The starting/basic/higher rate taxpayers have £78/£90/£60 less spending money available as a result of having made the donation. Only, that's not quite true because the nasty tax man doesn't refund that part of income tax which hides on the name of National Insurance.

[snip]

Oops! glasshouses and all that :-)

[snip]

My point of view, I pay £100 into my CAF account and I get an additional £28.20 as basic rate tax relief credited into the account to spend on a suitable organisation (charity, church etc) as I see fit. It will of course benefit a charity in the long term, but it also means I've got more to donate. (notwithstanding the 4% deduction by CAF)

I then claim the higher-rate tax relief on my tax form which reduces tax paid at the highest rate which ends up being less out of my pocket on 31 Jan/July each year.

That's why I think I'm in pocket (as opposed to sending a straight money-order to the US charity which was the OP's premise?)

That's my layman's take on the whole thing. I want to give to charity, the tax man helps. I could have spent the lot on beer (opportunity cost)...

Oh dear: and all in the name of offering a suggestion how someone might make a donation to a US charity.

I suspect Ronald's excellent explanations are all correct, but I know what I feel at the end of the day...

Allan

Yes, but this isn't a benefit to you. The £128.20 were, after all, originally earned by you, and taxed at 22%, i.e. £28.20 tax was deducted, and then given back (but to the charity, not to you). The effect is that the full £128.20 gross earnings will benefit the donees. I simply scaled down the figures by a factor of

1.282 to make the numbers more obviously tie in with the tax rate.

But as I've explained, you're not. Let's try it a different way.

As a basic rate taxpayer, for every £128.20 you earn gross, the tax man takes away £28.20 (i.e. 22%), and you get £100 in your pocket. You give the £100 to charity, and then the taxman gives the £28.20 to charity too. The effect of your donation is that for every £128.20 you earn gross, you have £100 less beer money, and the charity has £128.20 more money to spend on charitable work. The tax man has nothing.

As a higher rate taxpayer, for every £128.20 the charity gets, you will have given them £100 cash, as above. But to earn £100 net, you had to earn £166.67 gross from which the taxman took away

40%, i.e. £66.67. The charity reclaims £28.20 from the taxman, as before, so the taxman has £38.47 left over.

Now, the principle is that the charity should get your full gross earnings related to the donation. Basically you needed to use £166.67 worth of earnings in order to fund £128.20 worth of donation. At your tax rate, to have made £128.20 worth of donation, you ought only to be out £76.92 of beer money (£76.92 being 60% of £128.20). Of the £166.67 you earned, £128.20 are earmarked for the charity, and £38.47 for beer. So the £128.20 should not be taxed, but the £38.47 should be. The taxman should keep 40% of £38.47, and give you the other 60% back, leaving you £23.08 to spend on actual beer.

Lo and behold, £23.08 + £76.92 = £100. The £100 cash you handed to the charity (worth £128.20 to them) should have cost you only £76.92, so you had to "borrow" £23.08 from your beer fund. You are *temporarily out of pocket* by this extra amount until you get it back from the tax man, putting you back to where you should have been. That's why you're not "in pocket", because the amount simply reverses that by which you were out of pocket.

Final analysis: You earned £166.67, which we'll think of as £128.20 for the charity and £38.47 for beer. The taxman took away

40% (£51.28 + £15.39) leaving you 60% (£76.92 + £23.08). You should have lost only the £76.92, but instead you temporarily lost the £23.08 as well. The tax man needs to lose the £51.28 but keep the £15.39. Of the £51.28, the charity gets their £28.20, and you get your £23.08 back.

Of course.

Thirsty, I expect. All that beer you're not now buying. Cheer up, it's my round.

Just pay by credit card, or save monthly, then pay one lump sum by cc.