John Hewett is Chief Executive of Smedvig Capital, a London-based private equity firm that he co-founded in early 1996. He has been a close friend and supporter of RNIB since 2001 and as RNIB Founder Ambassador is a real advocate for share giving.
A gift from the Chancellor - can it be true?
"One of the justifications that I hear frequently about charitable donations, or their absence or sometimes modest scale relative to the US, is that the latter has such relatively generous tax breaks. This sentiment is sufficiently widespread that one can only conclude that our government has done an exceptionally poor job of communicating the breaks as the assertion is not true.
In fact the Chancellor has provided us all with no excuses whatsoever on that front and created a very favourable environment, particularly share. It is tough to detail these benefits in anything other than a dry manner, but the benefits are anything but, and are of great benefit to all of us as donors and also to the charities we support. So, indulge me for a moment ...
Many of us, particularly those considered more affluent individuals, own shares in publicly quoted entities. What few people seem to have understood, however, is that where such a holding has appreciated significantly in value the opportunity exists for very tax advantaged charitable giving.
Consider the simplified example of a holding of £10,000 in Company X, which is publicly quoted (ignoring AIM at this point where different rules apply) and the value of the holding has appreciated three-fold over slightly less than three years.
If the holding was sold it would derive a gross profit of £20,000. The net profit for a higher rate tax payer after a tax deduction of £8,000 (i.e. 40 per cent) would total £12,000 resulting in a return on investment of £10,000. Hence, the total value returned is £22,000.
If instead, that holding was gifted to RNIB, or any other charity, the Chancellor allows exemption from the capital gain and the entire value of the gift can be deducted from that period's income. This in effect provides £12,000 of value to a higher rate tax payer though reduced taxable income.
Everyone loves a bargain and this is true even when it comes to giving. The prospect of giving £30,000 of benefit at a cost of £10,000 is a very good deal!
I would encourage all of you to look through your portfolios to see if you have any suitable stock holdings. The benefit diminishes over time, albeit only slowly, in stocks held for more than three years and increases as the level of gain increases.
For most of us paying relatively large tax bills each year, it feels both satisfying and appropriate to be able to gift monies at a highly tax advantaged rate. The Chancellor has been kind enough to provide this opportunity; I encourage all of you to take advantage of it."