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Tax relief on charity donations in the UK is a way to encourage people to support charitable organizations whilst also saving on their taxes. This tax relief is a way to help you maximise the impact of your contribution and keep supporting causes that you care about.
Let us find out how you can maximise tax relief on charitable donations UK. Read on!
Tax Relief on Charity Donations
The UK offers both individuals and businesses the chance to support causes they care about whilst lowering their overall tax liabilities. For individuals, charitable donations can reduce your income tax, whilst businesses can also benefit by claiming donations as corporation tax deductions.
Higher-rate taxpayers can also claim back the difference between the higher rate of tax they pay and the basic rate, offering additional savings.
So, whether you are making a one-off donation or committing to regular giving, tax relief can make your generosity even more rewarding.
What are qualifying charitable donations UK?
Qualifying charitable donations in the UK encompass a broad range. These donations must be made to UK-registered charities or qualifying organisations, such as Community Amateur Sports Clubs (CASCs), within the EU or EEA to be eligible for tax relief.
Here are some of the common forms:
- Monetary Donations: These include one-off payments, regular contributions, or Payroll Giving deductions. Monetary donations are often eligible for Gift Aid, allowing charities to claim an extra 25% on top of your donation.
- Equipment and Trading Stock: Businesses can donate surplus goods, equipment, or stock and claim these as deductible expenses, reducing their Corporation Tax liability.
- Land, Property, or Shares: Donations of land, buildings, or publicly traded company shares can offer significant tax benefits. You can claim relief on both Capital Gains Tax and Income Tax for these types of contributions.
- Employee Time: If a business loans employees to a charity, the value of their time can qualify as a donation, provided it meets specific criteria.
- Sponsorship Payments: Payments made to sponsor a charity event or project can also be tax-deductible, but they must not result in significant personal or business benefits.
Eligibility to Claim Tax Relief on Charitable Donations
To claim tax relief on donations, you must meet specific eligibility criteria:
- You must pay enough Income Tax or Capital Gains Tax in the UK to cover the amount that will be reclaimed by the charity.
- Eligible donations include cash, property, shares, or land. Gifts to recognised charities or CASC charities qualify.
- The donation must be made to a registered UK charity or qualifying organisations in the EU, EEA, or approved countries.
Donation Schemes and Tax Relief
The UK offers 5 tax relief schemes to help donors maximise the impact of their contributions. Each scheme benefits different donation types, so that individuals and businesses alike can contribute. Here are the 5 schemes simplified:
- Gift Aid: Increases donations by 25% and provides relief for higher-rate taxpayers.
- Payroll Giving: Donations deducted from gross income through PAYE.
- Donor-Advised Funds: Tax-efficient accounts for ongoing charitable giving.
- Property and Land Gifts: Exempt from Capital Gains Tax and eligible for Income Tax deductions.
- Legacy Giving: Reduce Inheritance Tax by leaving at least 10% of your estate to charity
Payroll Giving: Donating Through PAYE
This scheme allows you to donate directly from your salary before income tax is applied, which means you benefit from immediate tax relief.
For example, if you decide to donate £10 per month and are a basic-rate taxpayer, the actual cost to you is only £8, as the tax relief covers the difference. This scheme is ideal for those looking to donate regularly, with the added benefit of reducing your tax bill.
To take part, your employer must partner with an approved Payroll Giving Agency. If you are an employee, check with your HR department to see if your company offers this scheme.
Employers can also enhance their corporate social responsibility (CSR) by offering payroll giving, and some even match employee donations, effectively doubling your contribution.
Gift Aid on Donations
Gift Aid is a fantastic way to make your money work harder for your chosen charity. By completing a simple Gift Aid declaration, charities can claim an additional 25% on your donation from HMRC.
For example, a £1,000 donation costs you only £750 as a higher-rate taxpayer. This reclaimed amount can be used to offset your tax bill or reinvested into more charitable giving.
Read relevant article for more information about gift aid tax relief
The process is simple: you complete a Gift Aid declaration confirming your tax status. Once signed up, the charity can claim Gift Aid on all your eligible donations.
Remember: If you make a donation as a non-taxpayer and the charity claims a 25% tax relief through Gift Aid, HMRC may require you to repay this amount.
Direct Donations
Direct donations also qualify for gift aid, provided that you are donating to a UK registered charity or Community Amateur Sports Clubs (CASCs) in the EU or EEA.
Direct giving is also tax-efficient for businesses. Companies can claim donations as expenses to reduce their Corporation Tax liability, making it a smart financial choice as well as a generous one.
Important Note: Keeping clear records of your contributions—whether cash, property, or shares—will make it easier to claim the tax benefits you are entitled to.
Donating Property and Land
If you have assets like property or land, donating them to a charity can provide substantial tax reliefs. Such gifts are exempt from Capital Gains Tax, and you can also claim Income Tax relief based on the market value of the asset.
This is an excellent option for those looking to make a significant contribution without a cash outlay. The process involves transferring ownership to the charity, which can use or sell the property to fund its work
Read relevant article: 10 Things You Need to Know to Avoid Capital Gains Tax on Property
To claim tax relief on property or land donations, include the donation amount in the “charitable giving” section of your self assessment form.
Leaving a Gift in Your Will
A gift to charity is free from inheritance tax (IHT). IHT is charged at 40% on any estate worth more than £325,000. But if you leave 10% or more of your net estate to charity, you will benefit from a lower inheritance tax rate of 36%.
This option is particularly beneficial for those with taxable estates who want to support registered charities whilst securing tax advantages for their heirs. You can choose to donate cash, property, or shares, choosing the best gift to suit your financial goals and personal values.
Seek professional advice to structure your will effectively and make the most of this opportunity.
Tax Relief on Charitable Donations for Higher-Rate Taxpayers
If you are a higher-rate taxpayer and donate £1,000 to a registered charity, the charity benefits from Gift Aid, allowing it to claim an additional 25%, which is £250, from HMRC. As a higher-rate taxpayer, you can also reclaim the difference between your tax rate (40%) and the basic rate (20%) on the gross donation of £1,250. This means you can claim back £250 through your self assessment tax return, effectively reducing the cost of your donation.
How to Claim Tax Relief on Charitable Donations UK (Self Assessment)
Claiming tax relief is simple if you file a self assessment. Declare your donations under the charitable giving section, including any donations eligible for Gift Aid.
If you are an employee using Payroll Giving, your donations are pre-tax, so no further action is needed.
For Businesses
Businesses can claim tax relief on charitable donations by deducting the value of the donation from their Corporation Tax bill. Donations can include cash, goods, or even company assets. To claim, businesses should record the donations in their accounts and include them in the company tax return. For donations of goods, the value should be based on their market price or the cost to the business. Proper documentation and receipts are required for this process.
FAQs on Charitable Donations and Tax Relief
Donations made through crowdfunding platforms are typically not tax-deductible when intended to support an individual. However, if the crowdfunding campaign is established for a legitimate charitable purpose and adheres to specific criteria, it can qualify for tax relief under applicable regulations.
Donating shares or securities allows you to claim Income Tax relief on their market value and avoid Capital Gains Tax on any increase in value. This can make it a tax-efficient way to give.
Yes, you can backdate a Gift Aid claim to the previous tax year if the donation was made before submitting your tax return for that year.
Yes, companies can deduct charitable donations from their profits before calculating Corporation Tax, whereas individuals claim tax relief through Gift Aid or Self Assessment.
Get Expert Advice on UK Tax Planning
Supporting the causes you care about is not just fulfilling—it can also be financially smart. At Legend Financial, we are passionate about helping you achieve your financial goals whilst making the most of the available tax relief on charity donations. From planning your giving strategically to understanding how gifts impact your tax liability, our experts are here to guide you every step of the way. Take our expert tax planning services to make your giving smarter and more impactful. Let us make a difference, together!
