Tax relief on charitable donations

If you make donations to charity, you can benefit from tax relief on those donations. This can be achieved in various ways.

Gift Aid

If you are a UK taxpayer, you can claim Gift Aid on donations you make to charity. Where this is the case, the amount donated is treated as made net of basic rate tax and the charity reclaims basic rate tax on the donation. This means that every £1 you donate is worth £1.25 to the charity.

To donate through Gift Aid, you must make a Gift Aid declaration. The option to make a Gift Aid declaration will usually be included on charitable giving pages. Alternatively, the charity may give you a form to sign.

The tax reclaimed by the charity is funded from the tax that you have paid. It is important therefore that you only make a declaration that you have paid sufficient tax to cover the tax that the charity will claim back. If this is not the case, or you make a Gift Aid declaration but are not a taxpayer, HMRC may recover the tax claimed by the charity from you. If your income falls, it is prudent to review any ongoing Gift Aid declarations so you do not get caught out.

If you are a higher or additional rate taxpayer, you can claim further relief equal to the difference between tax at your marginal rate and tax at the basic rate on your donation. This can be done in your tax return.

Payroll giving

If you are an employee and your employer operates a payroll giving scheme, you can make charitable donations through the payroll. Your employer will deduct your donations from your gross pay before tax. This automatically provides relief at your marginal rate, which means you do not need to claim higher or additional rate relief through your tax return. Your employer will pass the donations to the payroll agency that they use and the agency will pass them on to your chosen charity.

Making a gift in your Will

Charity donations are exempt from inheritance tax. Also, if you leave at least 10% of your estate to charity, the rate at which your estate pays inheritance tax is reduced from 40% to 36%.

Partner note: ITA 2007, Pt. 8, Ch. 2; ITEPA 2003, ss. 713 – 715; IHTA 1984, s. 23.

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