Thanks to various tax benefits available in the UK, charitable giving can be a financially savvy decision. Regardless of whether you have philanthropic leanings, just want to pay less tax or prevent yourself from losing your free childcare hours, charitable donations can benefit the donors and charities. Whether you’re a one-off or regular donor or even considering a significant gift, understanding these advantages can help you maximise the impact of your contributions while reducing your tax liability. 
Here are 6 useful tips you need to know about charitable giving in the UK.
1. Gift Aid: Are you claiming your full relief?
Gift Aid is one of the most straightforward and beneficial schemes for both donors and charities. We have all probably ticked that familiar Gift Aid box when sponsoring friends’ athletic feats or on Comic Relief night. When you do this the registered charity can claim an extra 25p from HMRC for every £1 you donate. This means that your donation goes further at no additional cost to you.
For example, if you donate £100 to a charity, the charity can claim an additional £25, making your total contribution £125.
Eligibility:
- You must be a UK taxpayer.
- You need to have paid enough Income Tax, or Capital Gains Tax to cover the amount the charity will reclaim.
Higher Rate and Additional Rate Taxpayers
If you pay tax at the higher rate (40%) or an additional rate (45%), you can claim the difference between the basic rate and your tax rate on your donation. This can be done through your Self-Assessment tax return or by asking HMRC to adjust your tax code.
For example, if you donate £100, the charity claims £25 back from HMRC, making your total donation £125. As a higher-rate taxpayer, you can claim back £25 (the difference between 40% and 20% on the gross donation of £125). Additional rate taxpayers can claim back £31.25.
2. Payroll Giving: Give as you earn
Payroll Giving allows you to donate directly from your salary before tax is deducted, meaning you get immediate tax relief at your highest tax rate. For instance, if you are a higher-rate taxpayer and you donate £100 through Payroll Giving, it only costs you £60 (as you save £40 in tax).
How to set it up:
- Check if your employer offers a Payroll Giving scheme.
- Fill out a Payroll Giving form with your chosen charity and donation amount.
- The donation is taken from your salary before tax is applied.
3. Capital Gains Tax Relief
When you donate assets such as shares, property, or land to charity, you don’t have to pay Capital Gains Tax on any increase in value. This can be a highly efficient way to make substantial contributions without incurring significant tax liabilities.
4. Limited Company opportunities
If you have a Limited Company there are tax advantages for charitable giving. Donations made by your company to UK-registered charities are considered tax-deductible expenses, reducing the declared profit on which you pay corporation tax.
5. Inheritance Tax Benefits
Charitable donations can also reduce your Inheritance Tax (IHT) bill. If you leave at least 10% of your estate to charity in your will, the rate of Inheritance Tax on the rest of your estate can be reduced from 40% to 36%. This benefits the charitable causes close to your heart and leaves more for your other beneficiaries.
Example:
- An estate worth £1,000,000 with a £100,000 charitable donation, assuming the full £375,000 nil rate band and £175,000 residential nil rate band were available, would see the IHT rate on the remaining £400,000 reduced to 36%, from 40%, potentially saving their heirs £16,000 in tax. So the heirs would receive less overall but so would the HMRC.
- For estates over £2m, the residential nil rate band starts to taper down by £2 for every £1 above this figure. So if your estate is valued over £2,350,000 you would lose your entire residential nil rate band allowance. Donating to charity to bring your estate under this figure you would regain this valuable allowance.
6. How to donate much larger sums?
For those considering more substantial one-off or regular donations, setting up a charitable trust can offer further tax benefits and autonomy over who you help with the funds. Donations made to a charitable trust qualify for Gift Aid, and the trust itself can reclaim tax on donations received, providing a structured way to manage your charitable giving while optimising tax relief. However, setting up your own charitable trust is costly and comes with a huge administrative and reporting burden.
Another way of achieving an aspiration to donate to a wide range of worthy local causes is through a Community Foundation. According to the UK Community Foundation…
“A community foundation connects philanthropic people with local causes that matter to them. It’s a charitable organisation focused on supporting a defined geographical area by building endowments and generating funds to support community needs and local organisations making a difference.”
I first heard about this from a wonderful client, who had supported a range of charities for many years but wanted to gain more autonomy over how her donations were used. She summarised her attraction to this method of charitable giving…
“I am building up a personal fund, which they invest and the income generated can be used to support local charities of my choice. My account can be passed to my family after my death allowing them to manage it and learn about philanthropy. If they are not interested, the money will be absorbed into the trust’s general fund. I meet with one of the advisers each year. We discuss who needs support and ensure our contributions align with my interests.”
Some recipients of charity grants are offered ongoing larger support, while others can be small but nonetheless needed, such as stationary packs for homeschooling during lockdown.
As my client is based in Bristol the local Charitable Trust here is Quartet, an amazing foundation founded in 1986 and is one of the largest in the UK. If you are in the region and would like more details, please do not hesitate to contact them here: Stories showcase amazing local charity work | Quartet CF.
They can support your charitable giving tax efficiently, it doesn’t matter how small or big.
However, if you live elsewhere fear not you too can access personalised, charitable giving with little admin input by reaching out to one of the other 46 UK or 4 internationally accredited foundations. To find one in other regions of the UK please visit: UK Community Foundations.
I now have several clients who donate through Charitable Community Trusts and we use these gifts to reduce the tax due, as well as help their local communities.
No matter how you choose to give to charity in the UK, you can be assured of numerous tax benefits, creating a win-win situation for both donors and recipients. By understanding and utilising these tax reliefs, you can maximise the impact of your contributions, supporting the causes you care about while enjoying significant tax savings.
Whether you’re making a one-off donation, setting up regular contributions, or planning your estate, exploring these tax advantages can enhance your giving strategy. Consulting with a tax advisor or financial planner can help tailor your charitable giving to your financial situation and philanthropic goals, ensuring you maximise the available tax benefits.
Your generosity can make a significant difference, not only to those in need but also to your financial health.
Tax is dependent on your own circumstances and personal situation and is subject to changes based on UK legislation and taxation regime. This article is based on our understanding of current legislation.
Is this something you can see yourself getting involved in? Let us know by leaving a comment below.