5 Tax efficient ways to give to charity

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Remember a charity in your Will

Leaving a gift in your will is a great way to give to charity, but it’s not the only way…

This week, as part of ‘Remember a Charity’s’ awareness week, we look at a number of tax efficient ways you can give to charity, as well as leaving a gift in your Will.

For Individuals, Sole Traders and Partnership:

Donations by individuals to charities or to community amateur sports clubs (CASCs) are tax free. This is called tax relief.

The tax goes to you or the charity. How this works depends on whether you donate:

  • through Gift Aid
  • straight from your wages or pension through a Payroll Giving scheme
  • land, property or shares
  • in your will

 

1. Gift Aid

Donating through Gift Aid means charities and community amateur sports clubs (CASCs) can claim an extra 25p for every £1 you give. It won’t cost you any extra.

You need to make a Gift Aid declaration for the charity to claim. You usually do this by filling in a form – many online fundraising sites such as gofund me or justgiving include an electronic form.

For a charity to gain under the Gift Aid scheme, they must be a registered charity with a registration number.

To make a Gift Aid donation, you must pay at least as much Income Tax (and/or Capital Gains Tax) as the amount of tax reclaimed by the charity.

Basic rate tax is 20 per cent, so if you give £10 using Gift Aid, it’s worth £12.50 to the charity. If you pay tax at the higher rate however, you can claim the difference between the rate you pay and basic rate on your donation.

 

2. Payroll Giving

This involves donating straight from your wages or your pension and is taken before tax. Be sure to ask if your company offers this scheme as many don’t.

You can gain tax relief for every £1 that you donate – this varies depending on the rate of tax you pay.

  • If you’re a lower rate taxpayer = 80p
  • If you’re a higher rate taxpayer = 60p
  • If you’re an additional rate taxpayer = 55p

 

3. Donating land, property or shares

If you donate any land, property or shares to charity, you don’t have to pay tax.

You get tax relief on both income tax and capital gains tax. It’s worth noting that charities often ask you to sell the gift on its behalf – you can do this and still claim tax relief for the donation, but you must keep records of the gift and the charity’s request.

Without records, you might have to pay Capital Gains Tax!

 

4. Leaving a gift in your Will

It’s possible to make provisions for donating to charity once you have passed away. This involves including your wishes within your Will.

Your donation could reduce your Inheritance Tax rate, if more than 10% of your estate is left to charity. Otherwise it will be taken off the value of your estate before IHT is calculated

You can choose to donate a fixed amount, an item, or a percentage of whatever is left after other gifts have been given out.

 

5. Limited companies:

If you run a limited company, you can pay less Corporation Tax when giving the following to charity:

  • money
  • equipment or trading stock
  • land, property or shares in another company
  • employees (on secondment)
  • sponsorship payments

To claim tax relief you will need to deduct the value of your donations from your total business profits before tax.


This article is provided for general reference only and does not constitute legal or tax advice. Your circumstances will affect what is most tax efficient for you therefore we always recommend contacting a specialist.