4 practical ways you can donate to charity and pay less tax

By HarperLees

If you’ve seen your money getting tighter and have been looking at ways of cutting back on expenditure, you’re not alone.

The cost of living crisis and the Covid pandemic have made things difficult for millions of people, with non-profit and smaller charities some of the worst hit. In fact, the combination of a drop in volunteer numbers and a fall in donations has made it even tougher for charities to continue their good work.

Indeed, stats released by the Charities Aid Foundation revealed that while charity donations in 2022 totalled £12.7 billion, donation levels and engagement with charities have still not recovered to the levels seen before 2020.

This is supported by research from Nationwide Building Society that revealed that more than 6 in 10 Brits have cancelled or cut down on their monthly charitable donations since the cost of living crisis began.

So, with this year’s Small Charity Week running between 19 June and 23 June 2023, it might be worth looking into donating to charity if it’s financially affordable for you to do so. It could help reduce how much tax you may have to pay, too.

Read on to discover four of the ways in which you can donate to charity and reduce how much tax you may have to pay.

1. Utilise Gift Aid

If you pay taxes, charities can reclaim the basic rate of tax you have paid on your donation. For example, a £100 donation is worth £125 to your chosen charity. This essentially means that more money is going to your chosen cause, without it costing you anything extra.

Similarly, if you are a higher- or additional-rate taxpayer, you can also claim back the difference between the basic rate and higher/additional rate tax on the value of your donation.

For instance, if you are a 40% taxpayer and you choose to donate £100 to charity, that charity can claim Gift Aid to make your donation £125. You could then personally claim back a further £25 (£125 x 20%) through self-assessment.

It’s also worth noting that if you donate goods to a charity shop, 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.

2. Give as you Earn

If you are employed and your employer operates a payroll “Give as you Earn” scheme, this is another way you can donate to charity tax-efficiently. By using this scheme, you would be able to give directly to charity from your pre-tax salary.

This means you would receive tax relief, depending on the rate of tax you pay. For example, if you are a basic-rate taxpayer, giving £50 to charity in this way would cost you £40. If you are an additional-rate taxpayer (45%), donating £50 to charity would only cost you £27.50.

3. Donate land, shares, or property

By donating land, shares, or property to charity, you can benefit from both Income Tax and Capital Gains Tax (CGT) relief. You can pay less Income Tax by deducting the value of your donation from your total taxable income.

Similarly, you may not have to pay CGT on land, shares, or property you donate to charity. It’s important to note that you may have to pay if you sell them for more than they cost you but less than their market value.

4. Donate to charities in your will

While donating to charity on death is another popular way of reducing tax bills, most UK adults don’t realise that it is an option or understand the benefits that come with it.

Indeed, a report from law firm Boodle Hatfield revealed that between March 2021 and March 2022, just 10,100 UK adults left money or gifts to charity in their wills.

Any donations you leave to a registered charity in your will would not be included when calculating the total value of your estate. This would mean that a large charity donation could be the difference between paying IHT and remaining just below the threshold.

When leaving a charitable legacy in your will, there are four common options:

  • Pecuniary legacy – a gift of a specified sum of money to your chosen charity and the most common and simplest way of donating to charity in your will
  • Residuary legacy – either the whole of your estate or a percentage of it is left, once all other bequests have been made and any other debts and costs covered
  • Specific legacy – a particular item is gifted to your chosen charity. This item must be specified in your will
  • A contingent legacy – money will be gifted to charity, only if another event, like your designated beneficiary pre-deceasing you, occurs.

It’s important to note that if you are still likely to pay IHT on some of your estate, then donating 10% or more of your total net estate (after any outstanding debts) to charity would enable you to benefit from a reduced IHT charge of 36%, rather than the usual 40%.

Get in touch

If you have any questions about how to donate to charity tax-efficiently, speak to an experienced financial planner. Please email info@harperlees.co.uk or call 01277 350560.

Please note

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.