Do you regularly donate money to charity?
Whatever money you give to charities, there are several ways that you can get tax relief on these gifts. Our guide explains the various ways that you can benefit from tax reliefs for charitable donations.
1. Gift Aid
Gift Aid is a simple way to increase the value of your donation to charities and Community Amateur Sports Clubs (CASC). If you are a UK taxpayer, claiming Gift Aid allows the charity or CASC that you support to reclaim basic rate tax (20 per cent) on your donation.
Charities or CASCs take your donation – which is money that you have already paid tax on – and reclaim the basic rate tax from HMRC on the equivalent ‘gross’ amount, i.e. before basic rate tax was deducted.
For example, basic rate tax is 20 per cent, so this means that if you give £10 to a charity using Gift Aid, your donation is actually worth £12.50 to the charity.
In order to claim Gift Aid, you have to make a Gift Aid declaration. This must include: your full name, your home address, the name of the charity and details of your donation. Most charities have a standard form which you complete when you make your donation.
If you are a higher rate taxpayer you can claim the difference through your tax return or by making a claim by telephone or letter.
2. Giving Assets to Charity
Ordinarily, when you dispose of assets such as land, property or shares, you will pay Capital Gains Tax on any profits that you make.
However, if you gift assets such as shares or land to a charity, you can benefit from both Income Tax Relief and Capital Gains Tax relief.
Similarly, if you sell an asset to a charity for less than its market value, you can also claim tax relief on the difference.
3. Donating directly via your Payroll
If you pay tax through PAYE (Pay As You Earn), Payroll Giving offers an easy way to reduce the cost to you of making regular gifts to charities.
As long as your employer or company/personal pension provider runs a Payroll Giving Scheme, you can simply authorise them to make a charitable donation directly from your wages or pension before deducting any tax.
The charitable donations are made after your National Insurance contributions are calculated but before Income Tax is deducted. This means that you only pay income tax on what is left.
For example, you pay tax at the basic rate of 20 per cent, and authorise a monthly charitable donation of £10. That means you save £2 tax (20 per cent of £10). The actual cost of the donation to you is £8, but the charity receives £10.