You have built up a substantial amount of wealth, either through your company or privately, and you would like to donate part of it to a charity. By doing so in the form of a regular donation, you can enjoy greater tax benefits.
Requirements for a regular donation
Regular donations are a personal tax deduction for income tax purposes. A major advantage of a regular donation is that the full amount of the donation is tax-deductible. There is no threshold amount and no maximum amount.
A regular donation must meet the following requirements:
- the same amount is donated each year;
- the amount is paid for (at least) five consecutive years;
- the gift ceases prematurely only upon the death of the donor;
- the donation is made to an organisation or an association (This may be a charity, but under certain conditions you may also make a donation to, for example, your children’s hockey club; in this way, you can get the tax authorities to contribute towards, for example, refurbishing the hockey club’s canteen.);
- The regular donation is set out in an agreement drawn up by a notary or in a private agreement concluded with the organisation.
- No benefits are received in return for the regular donation.
Set-off for income tax purposes
The gift is first deducted from income from employment and the home (Box 1), then from income from savings and investments (Box 3) and, finally, from income from a substantial interest (Box 2).
Example 1 – ordinary donation
Simone has built up a substantial fortune through her private limited company and feels it is time to share it with others. She has always cared deeply about nature and has decided to donate €40,000 a year to the World Wildlife Fund over the coming years.
In order to be able to donate a net amount of €40,000, a sum of €54,719 must be withdrawn from the company as a dividend. In 2020, her income amounts to:
- box 1: €20,000;
- Box 2: €54,719; after all, Simone must withdraw the amount of the gift from the private limited company, and she is liable for substantial interest tax on this amount;
- Box 3: The assets in Box 3 remain below the tax-free allowance.
The donation is a one-off gift, as it is not structured as a regular donation. This means that a threshold of 1% of the aggregate income applies, and a maximum of 10% of the aggregate income. The aggregate income amounts to €74,719; the maximum gift allowance in this case is €7,472. This therefore means that €32,528 is not deductible.
The deduction is first applied to the income in box 1. After the deduction, the income in box 1 amounts to €12,528. Income tax is payable on this amount. In box 2, 26.9% in substantial interest tax is payable on €54,719.
Example 2 – regular donation
The situation is the same as in the first example, except that the gift is now made in the form of a regular donation of €40,000 per year. This has the following tax implications.
As this is a regular donation, there is no threshold or cap on the deduction. The full donation of €40,000 is eligible for deduction. After the deduction, the income in box 1 is nil and the income in box 2 is €34,719. Substantial interest tax is still payable on the remaining €34,719.
No gift tax
Donations to organisations of general benefit (ANBI) and to organisations promoting social interests (SBBI) are exempt from gift tax. A donation to an ANBI or an SBBI is therefore not subject to gift tax.
Are you thinking about donating to a charity? If so, why not consider making a regular donation? This will allow you to make the most of your income tax relief! The downside is that you’ll need to commit in advance to donating for a period of five years.