Every year, Brits donate more than £10 billion to charitable causes. Around two-thirds of us donate to charity with the most popular causes being children/young people and animal welfare.
As the Charities Aid Foundation say: “Charities underpin our way of life. They provide the foundation for our cultural, religious and educational establishments large and small. They shoulder the burden of medical research, health services and support for the vulnerable in society; the disadvantaged, the young and the old.”
Many charities rely on donations from individuals in order to carry out their work. Keep reading for several ways that you can donate to good causes in a tax-efficient way.
Give as you Earn
Does your employer, company or personal pension provider run a payroll giving scheme? If so, you can donate straight from your income before tax is deducted.
The tax relief you get depends on the tax rate you pay. To donate £10, you pay:
- £8 if you’re a basic rate taxpayer
- £6 if you’re a higher rate taxpayer
- £5.50 if you’re an additional rate taxpayer
Gift Aid
The Gift Aid scheme lets charities and Community Amateur Sports Clubs (CASCs) claim the basic rate of tax their donors have paid from HRMC. It means they get an extra 25p for every £1 that you donate.
Gift Aid increases the value of your donations by 25% and that means more money goes to your chosen cause without it costing you anything.
In addition, if you pay tax above the basic rate, you can claim the difference between the basic rate and the rate you pay on your donations. You can either claim the difference through your Self-Assessment tax return or by asking HMRC to amend your tax code.
- Example – You donate £100 to charity as a higher rate taxpayer. The charity claims Gift Aid on your donation (an additional £25). As a 40% taxpayer, you can personally claim back £25 (£125 x 20%).
Remember also that, if you donate goods to a charity shop, you should let them know that you are a UK taxpayer. The charity can then claim Gift Aid on the money they make from selling your donations.
Give as you spend
If you buy goods online, there are several websites which will make a donation to a charity of your choice each time you shop at the site.
Once you have signed up for an account at a site such as www.giveasyoulive.com, you can shop at thousands of popular online retailers including Marks & Spencer, Amazon, Boots, John Lewis and Tesco. You shop as normal on the retailer’s website via the portal website/app and, when you buy, a donation is made to your nominated charity.
In addition, carrying charity credit cards also helps you to give as you spend. These are available from a range of credit card providers and typically make a donation of 0.25% of the value of your spend (25p for every £100 you spend).
Donate property, land or shares
Giving land, property or shares to a good cause is another way to donate to charity in a tax-efficient way. These gifts are exempt from Capital Gains Tax (CGT) and Inheritance Tax (IHT) while Income Tax relief also can be claimed on the value of the gift.
Make sure that you keep records of the donation, particularly if the charity asks you to sell these assets and donate the proceeds.
Leave a legacy
Charities rely heavily on gifts left in people’s wills. For example, JM Barrie left all the rights to Peter Pan to Great Ormond Street Hospital on his death in 1937, and the hospital has received royalties for more than 80 years.
When you die, you can leave everything to your spouse without paying any tax. After that, you’re subject to the Inheritance Tax (IHT) threshold, currently £325,000. Anything you leave beyond this threshold is taxed at 40% unless you leave it to an exempt body such as a UK charity.
Charitable gifts you leave in your will fall outside of your estate, enabling you to reduce any IHT liability. Your donation will either:
- Be deducted from the value of your estate before IHT is calculated
- Reduce your IHT rate, if you leave more than 10% of your estate to charity
You can leave a gift to a charity in one of three tax-efficient ways:
1. Leave a specific item to a charity (for example, shares or property)
2. State in your will that you wish to leave a fixed cash amount to a charity
3. Leave your whole, or a share of your estate to charity, once gifts, taxes and costs have been paid.
Get in touch
If you need advice on any aspect of your financial planning, we can help. To find out what we can do for you, email admin@stonegatewealth.co.uk or call us on 01785 876222.
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