Date posted: 23rd Jul 2024
If you make donations to charity, you can benefit from tax relief on those donations.
This can be achieved in various ways.
Gift Aid
If you are a UK taxpayer, you can claim Gift Aid on donations that you make to charity. Where this is the case, the amount donated is treated as made net of basic rate tax and the charity reclaims basic rate tax on the donation. This means that every £1 that you donate is worth £1.25 to the charity.
To donate through Gift Aid, you must make a Gift Aid declaration. The option to make a Gift Aid declaration will usually be included on charitable giving pages. Alternatively, the charity may give you a form to sign.
The tax reclaimed by the charity is funded from the tax that you have paid. It is important therefore that you only make a declaration where you have paid sufficient tax to cover the tax that the charity will claim back. If this is not the case, or you make a Gift Aid declaration but are not a taxpayer, HMRC may recover the tax claimed by the charity from you. If your income falls, it is prudent to review any ongoing Gift Aid declarations so you do not get caught out.
If you are a higher or additional rate taxpayer, you can claim further relief equal to the difference between tax at your marginal rate and tax at the basic rate on your donation. This can be done in your tax return.
Payroll giving
If you are an employee and your employer operates a payroll giving scheme, you can make charitable donations through the payroll.
Your employer will deduct your donations from your gross pay before tax. This automatically provides relief at your marginal rate, which means you do not need to claim higher or additional rate relief through your tax return. Your employer will pass the donations on to your chosen charity.
Lifetime gift of qualifying investments direct to charity
If you wish to gift an asset to charity, it is possible to do so and claim some tax relief. This could be an interest in land or potentially shares in a listed company.
You may have some shares that are worth £10,000. If you gave those to charity as a higher rate taxpayer, then you may be entitled to 40% tax relief on the gift. In addition, there should be no capital gains tax, even if the shares have increased in value since you have held the shares. Conversely, if the shares have decreased in value, you will not be able to claim a capital loss.
The charity may ask you to sell the gift on its behalf and transfer the monies. You can still do this and benefit from the above tax relief, but you will need to retain evidence of the charity’s request otherwise you may have to pay capital gains tax and receive less income tax relief.
Making a gift in your Will
Donations to charity are exempt from inheritance tax. Also, if you leave at least 10% of your estate to charity, the rate at which your estate pays inheritance tax is reduced from 40% to 36%.
If you have any queries regarding tax relief for donations, please contact us.
