six tax efficient ways of giving to charity
There are many ways of giving to charity whether that is giving
your time or making a donation. As part of Remember a Charity Week
we look at six tax efficient ways of donating to charity.
1. remember a charity in your Will
Many people decide to leave a cash legacy in their Will to a
charity that they have supported during their lifetime. A gift to a
charity in your Will is exempt from inheritance tax regardless of
the amount given.
You can leave a specific cash amount to a particular charity in
your Will or you can leave a cash gift to your Trustees and express
the wish that they give the money to such charity or charities as
they decide and in doing so that you would like them to have regard
to any wishes of yours which may come to their attention. For more
information on this please see our article "Dying Wish" on
Furthermore, if your estate is above the inheritance tax
threshold then you can reduce your inheritance tax liability from a
rate of 40% to 36% by leaving 10% of your estate to charity and we
will be explaining more about this in our feature article on this
2. Gift Aid
Charities are estimated to be losing hundreds of millions of
pounds a year in unclaimed Gift Aid. In these financially difficult
times, one way to ensure that the charity gets the most from your
donation is to state that you want Gift Aid to apply.
Gift Aid is a Government scheme which enables charities to
reclaim from the Revenue the basic rate income tax you have already
paid on your donation. To make a Gift Aid donation, all you have to
do is declare that you have paid enough tax to cover the amount the
charity will reclaim.
For all basic rate (20%) taxpayers charities gain an extra 25p
in every £1 donated if you state that Gift Aid is to apply. So if
you donate £10 the charity receives £12.50.
If you are a higher or additional rate taxpayer then you can
claim back via your tax return the difference between the higher or
additional rate of tax (40%/50%) and the basic rate (20%) on the
value of your donation. So you can reclaim 25p for every £1 donated
if you are a higher rate taxpayer and 37.5p for every £1 donated if
you are an additional rate taxpayer. For example, if you donate
£100 then the value of your donation with Gift Aid is £125 and if
you are a 40% taxpayer you can claim back £25 (£125 x 20%). This
can either be retained by you or passed on to the charity.
3. giving to charity through your pay or pension
If your employer or company/personal pension provider operates a
Payroll Giving Scheme then you can use this to make donations
direct to charity from your pay or pension. The donations are made
from your salary before tax, which means that if you are a basic
taxpayer and make a monthly donation of £20 you save £4 in tax (20%
x £20). If you are a higher rate taxpayer this increases to £8 (40%
of £20) and to £10 if you are an additional rate taxpayer (50% of
By giving through the Payroll Giving Scheme the charity can
receive all the tax relief directly without having to have the
administrative task of claiming it back through Gift Aid.
4. giving assets to charity:
If you give property or shares to a charity (or sell them to the
charity at less than their market value) then you can claim income
tax and capital gains tax relief. For further information on this
please contact a member of our Private Client Team.
5. the Charities Aid Foundation (CAF)
You can set up a CAF charity account which enables you to save
money for charitable giving. You can make regular deposits into the
account from £10 a month or large infrequent payments. You will be
in control of your account and can decide which causes or charities
you will donate to, how much and when. You can make one-off
donations to emergency appeals or regularly support charities you
care about. Your donation will be tax efficient because CAF will
automatically add 25% in Gift Aid to your donation if you are a UK
taxpayer. CAF will charge a fee for managing the account, but
because it is a charity they keep their fees to a minimum. For more
information please visit CAF Online.
6. donating unwanted shares:
If you have odd lots of small shares which are worthless to you
because they will cost you more to sell them than they are worth
you can donate them to ShareGift, a charity which receives unwanted
shares and sells them in bundles and gives the proceeds to a range
of UK charities. For information on how to donate your shares,
please visit ShareGift.