Tax-Efficient Charitable Giving in the UK

Gift Aid

Gift Aid is the simplest and most common form of tax-efficient giving. When you tick the Gift Aid box, the charity can claim an extra 25p for every pound you donate from HMRC. It costs you nothing extra, but the charity gets 25% more.

If you are a higher rate (40%) or additional rate (45%) taxpayer, you can claim back the difference between the higher rate and the basic rate on your Self Assessment tax return.

Payroll Giving

Also known as Give As You Earn, payroll giving lets you donate to charity directly from your gross salary before tax is deducted. This means you get immediate tax relief at your highest marginal rate without needing to claim anything back.

A 100 pound donation costs a basic rate taxpayer 80 pounds, a higher rate taxpayer 60 pounds, and an additional rate taxpayer 55 pounds. Your employer needs to have a payroll giving scheme set up with an approved agency. Ask your HR department.

Donating Shares and Property

You can donate listed shares, securities or land and property to charity and claim income tax relief on the full market value of the asset at the time of donation. You also pay no Capital Gains Tax on the disposal. This makes it one of the most tax-efficient ways to give if you hold appreciated assets.

For example, if you bought shares for 5,000 pounds and they are now worth 20,000 pounds, donating them means you avoid CGT on the 15,000 pound gain and can deduct 20,000 pounds from your taxable income. At 45% tax, that saves you 9,000 pounds in income tax plus up to 3,000 pounds in CGT.

Inheritance Tax and Charity

Leaving 10% or more of your net estate to charity reduces the inheritance tax rate on the rest of your estate from 40% to 36%. This can sometimes mean your beneficiaries actually receive more by you leaving more to charity. It is worth modelling with a financial adviser.