Donating to charity is a great way to reduce your tax bill, and it’s especially useful if you’re a higher rate tax payer (40%) or an additional rate tax payer (45%). We’ve highlighted some of the best ways to give to charity and save on your tax obligations below.
Charitable donations are eligible for up to 40% tax relief when you use Gift Aid. Using Gift Aid allows the charity to reclaim the basic rate tax (20%) on top of the donation, so for every £1 you donate the charity gets an extra 25 pence.
On top of that, you can reclaim the remaining 20% (or 25% if you are a higher rate taxpayer) against your personal tax bill. You can do this by declaring your donations on your Self Assessment return or by informing HMRC directly and asking them to change your tax code.
Payroll Giving Schemes
A Payroll Giving Scheme allows employers to donate to charity directly from employee wages or pensions. The donation is made before tax is deducted from your income so you won’t have to pay any income tax on the amount you gift. However, you’ll still have to pay National Insurance contributions on the amount of your donation.
The amount of tax relief you’ll receive through a Payroll Giving scheme depends on your personal tax code. For example, to donate £1 you’ll pay
- 80p if you’re a basic rate taxpayer
- 60p if you’re a higher rate taxpayer
- 55p if you’re an additional rate taxpayer
If you live in Scotland the tax relief, is slightly different. You can find more information on the different rates here.
Donating through land, property, or shares
Another way to donate to your favourite charitable organisation is to gift via land, property, or shares. When you transfer or sell any of these assets on behalf of a charity or to gift the proceeds to charity, you’ll get tax relief on both income tax and capital gains tax.
Income tax relief
If you are a higher or additional rate taxpayer and you submit your own Self Assessment tax returns each year you can deduct the value of your donations from your overall taxable income for the year. Alternatively, if you don’t normally complete a Self Assessment, you can contact HRMC and ask for a refund or for your tax code to be changed so you pay less income tax on your wages.
Giving through your will
When you donate to charity through your will, you can reduce the amount of inheritance tax due on your estate after you’ve passed. To qualify for this tax relief, you’ll need to allocate an amount that is at least 10% of the value of your estate for charitable donations. However, this can become quite complex when other taxes are taken into account so we always advise speaking with a financial advisor before making your will.
Speak to a qualified financial advisor
If you’d like to give to charity and take advantage of the tax breaks available our experienced advisors can help. Speak to us by calling 01926 405 883 or use our contact form to get in touch.