If you are going to donate to charity, you may as well make the most of the donation by reducing your tax bill using the tax relief schemes available. The schemes explained in this blog are all government created schemes to encourage charity donations.

The UK is a generous nation. According to the Charities Aid Foundation's 2021 report, even throughout a pandemic, the UK ranked 6th in the world in giving money, with 59% of people in the UK giving to charity. A lot of taxpayers are not aware of the relief available.

This blog covers the relief available to individuals. Similar relief is available to limited companies.

Helpful Tips

• Always keep a record of your donations.

• Pay attention to potential tax relief. Even if you do not want to keep the money saved for yourself, it can be put towards an increased donation.
  
  
  

Gift Aid

Donating using Gift Aid is simple and nearly all charities maintain a Gift Aid scheme.

Under Gift Aid, the charity requests information from you and then is able to claim back an additional 25p from HMRC for every £1 you donated. So, for example, if you donate £80 via Gift Aid the charity will have received £100 as a result of your donation.

This increase represents the money you have already paid in basic rate income tax (20%). So, if you use Gift Aid as a basic rate taxpayer, it is not you that directly benefits from the relief. Instead it is the charity that benefits, by way of an increased donation.

As a higher rate taxpayer (40%) or additional rate taxpayer (45%), even more relief is available. This additional relief will be felt directly by you, to reflect the fact that you pay a higher tax rate. This can then be claimed via your self-assessment or by contacting HMRC directly. If this applies to you, it is important to maintain a record to ensure you get the full relief available.

Give As You Earn (Payroll Giving Scheme)

Payroll Giving Schemes are optional schemes which can be set up by employers for use by their staff. Participating in a Payroll Giving Scheme is entirely optional.

Under this scheme, an employee will be able to instruct an outside organisation, known as a Payroll Giving Agency, as to which charities they want to donate to and how much they want to donate. The Payroll Giving Agency will tell the employer how much money to deduct. Then, this money will be deducted from the pay of the employee before any tax is deducted and sent to the Payroll Giving Agency who will then send the money to the relevant charity. The scheme is set up this way to ensure that the employee's choice of charity is kept private from their employer.

Under this system, the tax relief is gained by the employee's wages only being taxed after the charity donations have already been deducted. Again, it is not the employee that directly benefits from the relief, instead it is the charity that benefits, by way of an increased donation.

Donating Assets (Land, Property or Shares)

Any Land, Property or Shares donated to charity are exempt from Capital Gains Tax. You can even still get some relief for selling the assets to a charity for lower than the market value of the assets.

Income Tax relief is also available.

Leaving Gifts To Charity In Your Will

Leaving gifts to charity in your will also provide Tax Relief. The amount of relief depends on how much of your estate (the assets remaining after you die) is left to charity.

• If you donate less than 10% of your estate, the donation will be taken off the value of your estate before Inheritance Tax is calculated.

• If you donate 10% or more of your estate, the donation will reduce your Inheritance Tax rate.

It's important to note however that there is normally no Inheritance Tax to pay if the value of your estate is below the £325,000 threshold.

More Information

If you are a client of ours you will benefit from free year-round HMRC support, so if you have any questions on how to best maximise your donations contact us here.