Many people want to make a difference and support charitable causes close to their hearts. However, they may not be aware of the different ways to make donations or how to do this tax-efficiently.

Giving cash

Most people know that you can donate money to a charity as a one-off or by setting up a standing order. Not all are aware, though, of the Gift Aid scheme.

If you sign a Gift Aid declaration, which most charities offer, this enables the charity to claim an extra 25p for every £1 you give.

Higher rate taxpayers can also claim tax relief. Where income tax is paid at 40%, for every £1 donated, you receive a 25p tax reduction.

Donations qualify for Gift Aid provided they are not more than four times what you have paid in tax in that tax year (6 April to 5 April). If you do not pay sufficient tax to cover the tax reclaimed by the charity, HMRC may seek to recover the amount due from you.

Donating from your wages or pension

If your employer, company, or personal pension provider runs a Payroll Giving scheme, you can donate from your wages or pension before tax is deducted from your income.

The tax relief you get depends on the rate of tax you pay. In England, to donate £1, it will cost you:

• 80p if you’re a basic rate taxpayer
• 60p if you’re a higher rate taxpayer
• 55p if you’re an additional rate taxpayer

Giving shares

Another option is to give shares that you own to a charity.

If the shares are quoted on a recognised stock exchange, this is one of the most tax-efficient ways of donating. This is because it benefits from capital gains tax and income tax relief (and is also an exempt transfer for Inheritance Tax).

If you gift shares with a market value of £5,000, the charity benefits by £5,000. You will have a capital gain (assuming the shares have gone up since you acquired them), however, you will not need to pay capital gains tax. You can also claim income tax relief against your income tax bill at your tax rate (20% for basic rate taxpayers and 40% for higher rate taxpayers) on the value of the benefit to the charity.

Always check with the charity whether they can accept the proposed gift of shares. If they ask you to sell the shares on their behalf you can, however, you should keep the evidence of this request. If not, you may be treated as having made the disposal in your own right. This may expose you to a capital gains tax charge, and the cash you have given to the charity may be treated as a Gift Aid donation.

Gifts of land and buildings can also qualify for these reliefs. A charity cannot claim Gift Aid relief on the gift of an asset.

Leaving a will legacy to charity

Many people choose to leave a legacy to charity in their Will.

In Autumn 2023, Remember A Charity (part of the Chartered Institute of Fundraising) reported that Charity legacy income was estimated to have reached £4bn. Bequests were almost 140,000 in 2022/23 – an annual income growth of 6.5%.

Any sums left to charity on death via a will are inheritance tax (IHT) exempt, so IHT is not payable on the value of the estate that is given to charity.

A reduced rate of inheritance tax, currently 36% as opposed to 40%, can also be achieved for the value of the estate chargeable to inheritance tax when 10% of the estate’s net value is given to charity.

Donations from a limited company

Often overlooked is the option of your company itself making a charitable donation. Such a donation qualifies for corporation tax relief in the company, reducing the amount of corporation tax relief payable to HMRC.

If you can find a charity that is locally based or that meshes with your business sector, provided you or your company do not directly benefit, it may even be a good public relations boost in your community.

Overseas charities note

The above guidance relates to giving to UK charities. As of 6 April 2024, non-UK charities ceased to be qualifying charities for the purposes of UK charitable tax reliefs.

Can we help?

If you would appreciate advice on the tax position of your donations to charities, or how to be more tax-efficient with your charitable giving, please chat with your Shipleys’ contact or one of our specialists on this page.

Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary. If you would like advice or further information, please speak to your usual Shipleys contact.

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