How to donate to charity in a tax-efficient way

How to donate to charity in a tax-efficient way

In 2017, Brits gave more than £10 billion to charity With almost two-thirds of people donating cash to good causes, and others donating time or goods, the charitable sector provides essential support to hundreds of worthy causes in the UK and abroad.

If you want to donate to charity, there are ways that you can do this tax-efficiently. Keep reading to find out how.

Use the Gift Aid scheme

If you’re a UK taxpayer, then you can increase your charitable donation at no cost to yourself by using Gift Aid. When you donate, the charity can reclaim the basic rate of tax you have already paid on your donation. So, a £10 donation is worth £12.50 to the charity.

If you’re a higher rate taxpayer, you can also claim the difference between basic rate and higher rate tax on your donation.

If you’re donating goods to a charity shop, then it’s always worth letting them know if you are a UK taxpayer. The charity can claim Gift Aid on the money they make from selling your donations.

Donate land, property or shares

One tax-efficient way to donate to charity is to gift property, land or shares. You don’t pay any tax on land, shares or property that you give to charity or that you sell to them for less than their market value.

You get tax relief on both:
• Income tax – you deduct the value of your donation from your total taxable income in the tax year you made the donation to charity through Self-Assessment.
• Capital Gains Tax.

Shop and donate

Fancy donating to your favourite causes just for buying the items you’d buy anyway? If so, there are schemes which let you do this.

For example, EasyFundraising (www.easyfundraising.org.uk) lets you raise money for your favourite causes when you shop online.

You simply register at the site, search from more than 110,000 good causes, and then shop using the EasyFundraising portal at the likes of Amazon, Boots, Argos, John Lewis and even Shepherds Friendly. More than 3,100 companies participate in the scheme.

Give through your salary

One simple way to donate to your favourite charity is through your workplace. “Payroll giving” (sometimes called ‘workplace giving’) gives charities a regular income – and its tax-efficient for you.

Donations to your charity are taken before tax. This means the charity gets more of your contribution, and it costs you less as you won’t pay any income tax on this donation. It also means that
charities don’t have to claim Gift Aid and so there’s less paperwork and cost for them.

You can give to any organisation recognised as charitable by HMRC.

Leave money in your will

When you die, you can leave everything to your spouse without paying any tax. After that, you’re subject to the Inheritance Tax (IHT) threshold, currently £325,000. Anything you leave beyond this threshold is taxed at 40% unless you leave it to an exempt body such as a UK charity.

Charitable gifts left in wills are outside your estate before inheritance, enabling you to reduce the tax paid on your estate. Your donation will either:
• be taken off the value of your estate before Inheritance Tax is calculated
• reduce your Inheritance Tax rate, if more than 10% of your estate is left to charity.

There are three ways of leaving a gift in a tax-efficient way to a charity:
• Leave a cash amount stating in your will that you wish to give a fixed amount to your charity of choice
• Leave a specific item to charity, such as property or shares
• Leave your whole, or a share of your estate to charity once gifts, taxes, debts and costs have been paid.

Whichever way you choose to give to charity, you’re supporting the work of some vital causes in the UK and beyond. By taking some small steps you could also be increasing the value of your donation and benefiting your own tax position.

Please note: All information within Your Resource Centre is correct at the time of publication, and we make every effort to keep content accurate. However sometimes information may be out of date. You should not rely on this information when making financial decisions as no financial advice has been given. The information reflects the view of the author and not that of Shepherds Friendly Society.

If you’re not sure what to do when making financial decisions then you should consult a financial adviser, who will likely charge for any advice that is given.

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