Tax-efficient charitable giving in the UK

Giving to charity is a powerful way to make a positive impact on society and improve your own financial situation through tax relief in one go.

In the UK, there are several tax-efficient methods to donate to charity, each designed to maximise the benefit to both donor and charity. This guide will walk you through the key strategies.

Gift Aid

One of the simplest and most popular ways to enhance the value of a charitable donation is through Gift Aid. When you donate using Gift Aid, the charity in question can reclaim the basic rate of tax on your gift, which is currently 20%. That means for every £1 you donate, the charity receives an additional 25p at no extra cost to you.

Higher-rate taxpayers can also personally benefit by claiming the difference between the higher rate of tax (currently 40% or 45%) and the basic rate on the total value of their donation. This can be done through their self-assessment tax return.

To qualify for Gift Aid, you must:

  • be a UK taxpayer
  • have paid at least as much income tax or capital gains tax in that tax year as the amount the charity is reclaiming.

Payroll Giving

Payroll Giving, also known as Give As You Earn, allows you to automatically donate money directly from your salary before tax is deducted – if you’re enrolled on a PAYE scheme, of course.

In practice, that means that for the donation of a basic rate taxpayer, 80% of the donation would be taken from their salary, and 20% from the tax that would have usually gone to HMRC. That will save you a good amount on your tax bill, especially if you’re an additional or higher-rate taxpayer.

Your employer needs to be registered with a Payroll Giving scheme for you to participate. If they’re not, it might be worth encouraging them to join.

Giving land, property or shares

Donating land, property or shares directly to a charity can be highly tax-efficient, as you don’t have to pay tax on these assets. You can get tax relief on both income tax and capital gains tax.

  • Income tax relief: You can pay less income tax by deducting the value of your donation from your total taxable income.
  • Capital gains tax relief: You do not have to pay capital gains tax on land, property or shares you give to charity.

Leaving a legacy

Including a charitable gift in your will is another way to give tax-efficiently. Not only does this support causes you care about, but it can also reduce the inheritance tax burden on your estate.

Specifically, gifts to UK-registered charities are exempt from inheritance tax, and if you leave 10% or more of your estate to charity, the tax rate reduces from 40% to 36%. While that won’t usually let you leave more to your loved ones than you might be able to if you didn’t donate to charity, it does mean that you don’t choose between giving to charity and providing for your loved ones. You can do both.

Get in touch for some advice

A lot of what we talked about in this blog post requires good record-keeping and accounting, so if you need some help with that side of things, feel free to get in touch with us. We’ll do our best to help you out with tax efficient charitable giving and any other accounting queries you may have.

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