Tax reliefs when donating to charity

What tax reliefs can individuals gets when donating to charity? 

When an individual donates money to charity, various tax reliefs are available. These usually benefit both the individual and the charity, as the charity tends to receive more money while the donor pays less income tax. 

The amount of relief available and how it’s applied depends on how the donation is made. Common methods of donation include:   

• via Gift Aid 

• through a Payroll Giving scheme (ie straight from an employee’s wages or pension) 

• through land, property or shares

• via a gift in a Will 

Remember to keep a record of your donations if you want to deduct them from your taxable income.

Gift Aid 

If you donate to a charity or a CASC via Gift Aid, they can claim an extra 25p for every £1 donated if they have registered with HM Revenue and Customs (HMRC) to be part of the Gift Aid scheme. It won’t cost you, as the donor, any extra. Charities are able to claim Gift Aid on most donations, although there are some payments that do not qualify for Gift Aid. 

To enable the charity you’re giving to to claim Gift Aid tax relief, you must make a Gift Aid declaration. You can use one declaration to cover all donations to the charity during the past 4 years. 

Higher rate taxpayers can also receive tax relief for themselves in relation to donations made using Gift Aid. You can claim the difference between your normal tax rate (eg the higher rate) and the basic rate that’s payable on your donation (ie the additional amount the charity received via gift aid). For example, if you are a higher rate taxpayer and donate £200 to a charity, the charity can claim Gift Aid to make your donation £250; you pay 40% tax (ie the higher rate) so you can personally claim back 20% of the £250 (ie £50). 

You can claim this relief either on your Self Assessment tax return, by asking HMRC to amend your tax code, or by contacting HMRC directly.

Payroll Giving schemes

Some employers provide the option of donating to charities directly from employees’ wages. Donations can also be made directly from pensions. 

To do this, your employer must have a Payroll Giving scheme. Under such a scheme, your donation is made before tax is deducted from your income. You’ll still pay National Insurance contributions on the amount of your donation, but you won’t pay any income tax on the amount you donate.

The amount of tax relief you get depends on the rate of tax you pay. It’s worked out by reference to the amount you must pay to give £1 to the charity. The amount you don’t need to pay in order to make up the £1 you give to charity is effectively the income tax you’ve not had to pay. The rates differ across the UK. In England and Wales, to donate £1, you must pay:

• 80p if you’re a basic rate taxpayer 

• 60p if you’re a higher rate taxpayer 

• 55p if you’re an additional rate taxpayer 

In Scotland, to donate £1, you must pay:

• 81p if you’re a starter rate taxpayer

• 80p if you’re a basic rate taxpayer

• 79p if you’re an intermediate rate taxpayer

• 59p if you’re a higher rate taxpayer

• 54p if you’re a top rate taxpayer 

For more information, read the government’s guidance on Payroll Giving schemes. 

Donating to charity through land, property, or shares

An individual doesn’t have to pay tax on land, property, or shares that you donate to charity. It is possible to get relief on both income tax and capital gains tax (CGT). 

To get income tax relief, you can deduct the value of your donation from your overall taxable income. You can do this by adding the amount you’re claiming in the ‘Charitable giving' section of your Self Assessment tax return form. If you don’t normally complete a Self Assessment tax return, you can contact HMRC instead. You will get a refund or your tax code will be changed so you pay less income tax for that year.Usually, no capital gains tax needs to be paid on land, property, or shares that are given to charity. However, you may have to pay if you sell these assets for more than they cost you but less than their market value. In this case, you will need to work out how much you gained using the amount the charity actually paid you for the asset (ie rather than the actual value of the asset).

To make sure you can claim all reliefs due to you, you should keep for your records: 

• legal documents showing the sale of an asset or its transfer to a charity 

• any documents from a charity asking you to sell land or shares on its behalf  

It is recommended that you keep these records for at least 22 months from the end of the tax year that the donation occurred in. 

For more information, read the government’s guidance on tax relief when selling land, property, or shares

Donating to charity in your will 

If you decide to donate to charity in your Will, the value of these items will either be taken off the value of your estate before inheritance tax (IHT) is calculated or will actually reduce your inheritance tax rate if 10% or more of the value of your assets is left to charity.

Donating to charity in your will is worth considering if you would like to support a particular charity even after your death. The rules on exactly what you can donate to charity in order to qualify for the lower inheritance tax rate can be quite complex.

For more information on making legally valid gifts in a will, read Making your will. You can get help making a bespoke will to ensure that all of your charitable gifts are made in the way that’s best for both the charity and for the friends or family who will inherit under your will.

Tax reliefs for limited companies donating to charity

There are different tax reliefs available for limited companies that donate to charity. A limited company will pay less corporation tax when it donates to charity: 

• money 

• equipment or items that the company sells 

• land, property, or shares 

• employees (eg those on secondment), or

• sponsorship payments  

You can claim corporation tax relief by deducting the value of a donation from your company’s total business profits before tax is paid.

Sponsoring a charity

Limited companies can also sponsor charities. Sponsorship is beneficial for both the charity and the company: the company gets something related to its business in return. For example, extra publicity or brand reputation from the charity endorsing the business or letting it use its logo. The charity receives funding. 

You can deduct sponsorship payments from your business profits before corporation tax is paid by treating them as a business expense. Only certain types of sponsorship payments qualify as charitable payments. The charities helpline can help you establish whether a payment is a donation or sponsorship.