Tax Helpsheets
Back to HelpsheetsTax-efficient Charitable Giving
There are various ways in which you can give to charity tax efficiently which they allow the charities to receive more income.
The charities will gain more from your gift if you donate through a designated scheme, such as payroll giving or Gift Aid.
Gift Aid
Gift Aid can be used by anyone to make one-off or regular donations.
For UK taxpayers the charity can then reclaim the basic-rate tax (20%) on the donation and higher and additional rate taxpayers reclaim an additional relief through their personal tax return, to give full tax relief at their marginal rate.
As a taxpayer you just have to declare to the charity that you are a UK taxpayer so that they can reclaim the tax and this can be done on the phone or by signing a form. The charity can claim up to £5,000 of small donations (up to £20) without the need for a declaration. You must pay at least as much tax in the tax year concerned as the charity are reclaiming.
Donations can then be made of any size and either on a regular basis or as a one-off gift.
There are limits on the value of a benefit you can receive in consequence of making the gift and still allow the gift to qualify for gift aid. For donations in excess of £10,000, the limit on the value of benefits that can be received is 5% of the donation, with an overall limit of £2,500.
Give As You Earn
For employees, this is the best way to make regular donations tax efficiently.
The donation is deducted from your gross salary and paid to any charity of your choosing and this reduces the pay on which you are taxed, but it does not reduce your national insurance charge. For a basic rate tax payer the gift reduces your tax bill by 20% of the amount gifted and at their marginal rate for a higher and additional rate taxpayer.
You can also use a Charities Aid Foundation account. Under this scheme you pay a minimum of £10 per month from your gross pay into your CAF Account from where you can then make tax-free donations when you wish to. You are issued with cheques that can also be used on the internet and in collection tins.
You can set up joint funds with colleagues for Give As You Earn contributions and for larger contributions you can contribute to a CAF Charitable Trust. The simplest way to set up a Give As You Earn scheme is to do so directly through your employer.
You can make donations by both Gift Aid and Give As You Earn, but you only get tax relief once on each donation.
Other Donations
You can give shares and other UK registered assets to charity and claim tax relief. By signing share certificates over to a charity, you can claim back any stamp duty paid. On your self-assessment return you can claim for tax-relief on the gift against your income.
Donations of land or property to charity also attract full income tax relief at your marginal tax rate.
Gifts made to UK charities are also free of inheritance tax and capital gains tax on the increase in value of when you gift it compared to the acquisition cost. From April 2012 there was a 10% reduction in the rate of inheritance tax from 40% to 36% on an estate where 10% or more of the estate is given to charity.
When filling in your self-assessment tax return you can also instruct HMRC to send some or all of any tax rebate that is due direct to the charity of your choice.
How We Can Help You
We can advise you on the most tax efficient way for you to give to charity.