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December 27th 2019

Charitable giving - tax breaks

Many charities have a big fundraising drive at this time of year, the season of goodwill and giving. Happily, the UK tax system incentivises charitable giving in various ways, including those below.

Gift Aid

Under the Gift Aid scheme, charities and community amateur sports clubs (CASCs) can reclaim from HMRC 25p for every £1 of qualifying donations received.

The donor must usually give the charity a declaration confirming that they have paid enough tax (income tax or capital gains tax) for the tax year in question.

Higher rate taxpayers who donate to charity can reclaim from HMRC the difference between basic rate tax on the donation, and the tax they actually pay. This is normally done on the taxpayer's Self Assessment return, or by amendment to their PAYE tax code.

Payroll Giving

If your employer or pension provider operates a payroll giving scheme, you can donate to a charity (but not a CASC) directly from your wage or pension. The donation is deducted before your tax is worked out, providing immediate relief at up to 46p in the pound (in Scotland)/ 45p in the pound (rest of UK).

Gifts of land, property or shares

Relief from income tax and capital gains tax is available for gifts (or sales at undervalue) of land, property and shares to a charity (but not a CASC).

The income tax rules have been summarised above.

Capital gains tax relief is also available for a gift or sale to a charity at less than market value - in the case of a sale a less than market value, the gain is normally worked out based on what the charity actually pays you, rather than the full market value of the asset in question.

Detailed records of the gift or sale must be retained.

Claims to relief for gifts of land e.t.c. can be made on the donor's Self Assessment tax return, or by writing to HMRC.

Inheritance tax relief

Gifts left to charity in your will won't normally be included in the taxable value of your estate for inheritance tax purposes.

Also, if you leave at least 10% of your "net estate" to charity, the inheritance tax rate charged on the rest of your estate is reduced to 36% from the normal rate of 40%.

Charitable giving by limited companies

Tax relief for charitable giving works differently for companies. For tax purposes, a donation paid by a company to a registered charity is deductible against total profits for the period in which the payment is made. The amount of the deduction is limited to the amount of profits arising in the period; any excess cannot create or augment a loss.

If the company donates to a charitable parent entity, relief is available for donations paid within and also up to nine months after the end of the accounting period.

Read more about our personal and corporate tax services; or contact us today if you'd like to discuss any of the points made in this article.

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