Irish people are probably the most generous in the world and when it comes to decent causes, we have long pockets and equally long hands.

Fortunately, prosperity came to Ireland many years ago, and while we have had our ups and downs since then, the generosity of the Irish public still knows no bounds. Property values in particular have risen in excess of one hundred times in the last 30 years, albeit stagnant currently.

But since the pandemic last January, the fully authorised and registered charities are now feeling the pinch and continuing to seek help from anywhere it can be found. The Celtic Tiger boom is but a memory. John Lowe of Money Doctors gives the low-down.

How to donate
There are many ways of donating in particular where it is beneficial to the charity and to you the taxpayer. Bequeathing some or all of your assets including cash on your passing to your favourite registered charity is the life blood of some of these charities and it should continue – they are doing great work and you save tax by doing so.

There are three kinds of legacy you may leave:

  1. Pecuniary - A pecuniary legacy is a specified sum of money, determined when the will or codicil is written,
  2. Specific - A specific legacy is the bequest of a particular item of value. This can include stocks, shares, proceeds of a life assurance policy, property, furniture, jewellery etc.,
  3. Residuary - A residuary legacy is the gift of the residue of your estate, or a share of the residue after other bequests to your family and friends have been made and all debts, taxes and expenses have been paid.

However, before you die, you can donate and at the same time, save tax. To qualify for the tax relief, a donation must satisfy a number of conditions:

  • It must be in the form of money (cash, cheque or draft or direct transfer into the charity account)
  • It must not be repayable.
  • It must not confer any benefit on the donor or any person connected with the donor.
  • It must not be conditional on, or associated with, any arrangement involving the acquisition of property by the charity or approved body.

What is an "Eligible Charity"?
The tax relief detailed above is only available for donations to Eligible Charities or Approved Bodies. What does this mean?

An Eligible Charity is defined by the legislation as any charity within the State, which is authorised in writing by the Revenue Commissioners for the purpose of this Scheme. In order to qualify for eligible charity status, the charitable organisation:

  • must have a charitable tax exemption number or CHY No. and,
  • must have been in operation for at least three years since being granted the CHY No.
  • must make a formal application to Revenue on the form provided Form of application to Revenue for Authorisation as an "Eligible Charity" for the purposes of Section 45, Finance Act, 2001 (donations to eligible charities).
  • must meet any other conditions that Revenue may require from time to time.

What donations qualify for relief? The minimum donation in any year that must be made to anyone eligible charity or approved body is €250. Donations made by installments (e.g. Standing Order) will also qualify. For the purposes of tax relief, and where there is no association between the donor and the charity(s)/approved body(ies) to which the donation is made, there is no maximum qualifying donation.

However, where there is an association between the donor and the charity(s)/approved body(ies) at the time the donation is made e.g. where the donor is an employee or member of the charity/approved body, then relief will be restricted to 10% of the total income of the individual for the relevant year of assessment.*

It must not be conditional on, or associated with, any arrangement involving the acquisition of property by the charity or the approved body.

Changes
From 1st January 2013, changes in the tax relief on donations to charities came into effect. Essentially:

1. The tax refund for donations from all donors regardless of their tax status (PAYE or Self-assessed) will now go to the charity in all cases at a blended rate of 31%. Charities no longer need to ask donors about their tax affairs and the only reason that a refund claim will be rejected is if the donor has not paid sufficient tax in the relevant year to cover the reclaim or inaccurate details have been supplied.

2. The qualifying donation threshold remains at €250 and must still meet the condition of being given "at arms-length with no strings attached" i.e. there can be no benefit to the donor.

3. The tax relief will now be given at a blended rate of 31% regardless of the rate of tax paid by the donor and this will be on a grossed up basis.

For example: A donation of €250 will be grossed up at 31% as follows: €250*100/69 = €362.32 so the tax refund will be €362.32-€250 = €112.32. On this basis the tax refund on a donation of €500 will be €224.64 and on €1,000 it will be €449.27.

4. An annual limit of €1million per individual can be relieved under the revised scheme and donations under the scheme are no longer subject to the higher earner restriction because the tax refund goes to the charity in all cases, not to the donor.

5. In the case of a donor who is "associated" with the charity (employee, board member, member etc.) the limit for tax relief on donations to a maximum of 10% of annual income continues to apply as per above.

6. Donors can sign the approved certificate/form to cover qualifying donations over a five-year period using the new CHY3 "enduring" form or if they prefer for one year using the CHY4 annual form. In each case they are giving the charity permission to claim a tax refund on the donation/donations of €250 or more during the period covered by the form.

7. Each form requires that the donor fills in their PPS number and signs the declaration form which the charity must retain for audit purposes, subject to data protection rules on security. However, renewal of both forms has been made much easier and can be done by donors online, by phone (recorded message NOT a note of the call), by text, email or letter removing the need for donors to send charities signed forms every year. The charity is required to maintain a verifiable record of renewals that may be audited by Revenue at any time.

Now you know – it's a good time to give for the charities. Further information can be obtained from Inspector of Taxes, 9/15 Upper O'Connell Street, Dublin 1 (DIRD@revenue.ie) (01) 874 6821. For more information click Revenue's website.

*Full details of 10% restriction, which applies to donations made on or after 6 February 2003 are set out in the 2003 Finance Act.

For more information click on John Lowe's profile above or on his website.