Tax Efficient Ways to Donate to Charity

Many people choose to donate to a charity they care about, whether that's by making payments throughout their lifetime or by leaving money in their will.

According to the Charities Aid Foundation, 60% of people in the UK gave money to charity in 2017, donating an estimated £10.3 billion in total.

Supporting a good cause is worthwhile in itself, but certain charitable donations can also go towards reducing your income tax bill or cutting down on the inheritance tax liability of your estate.

There are a number of ways you could make a donation to charity.

Giving to charity through payroll

You can donate straight from your salary by opting into a payroll  giving scheme.

These allow you to give an amount of your choice to any charity that is recognised by HMRC.

Because the donation is taken from your pay before tax, you'll benefit from tax relief depending on your marginal rate of tax:

  • basic rate: 20%
  • higher rate: 40%
  • additional rate: 45%.

If you pay tax in Scotland you'll also get tax relief at your marginal rate (though this is slightly different to the rest of the UK).

Your employer will need to operate a payroll giving scheme for you to donate through payroll, so speak with them to find out if this option is available.

Donating through Gift Aid

Gift Aid allows charities and some community sports clubs to claim an extra 25p for every £1 you give.

This won't cost you anything, and you can usually do it by completing a Gift Aid declaration form.

If you pay above the basic rate of tax, you can claim the difference between the rate you pay and the basic rate on the amount you donate.

Your donation will only qualify if it's less than 4 times what you paid in tax in the previous tax year.

Giving land, property or shares

You may choose to donate an asset, such as land, property or shares, rather than cash.

There is no tax payable on such non-cash assets if you donate or sell them to a charity at below market value.

You can claim income tax relief on these donations by deducting the value of your donation from your total taxable income.

Although this type of donation is also exempt from capital gains tax, you may still have to pay it if you sell the assets at less than market value but more than what you paid for them.

Leaving gifts in your will

As well as donating throughout your lifetime, you can give to charity in your will.

This could be a fixed amount of money, an item, or the remainder of your estate after other gifts have been given out.

Any donations to charity left in your will are exempt from inheritance tax (IHT), as they don't count towards the taxable value of your estate.

Alternatively, if you leave more than 10% of your estate to charity, any IHT payable will be changed at a reduced rate of 36%.  

Contact us to discuss your tax planning strategy.