Six tips to save on tax when you give money to charity

Give generously: Donations fell from £11.3billion to £10.7billion last year and could fall further this year

Donating to a good cause can help change lives for the better. But as the cost of living continues to rise, many charities fear that donors will rein in their generosity. 

Donations fell from £11.3billion to £10.7billion last year and could fall further this year. But there are ways to donate that are tax efficient and can financially benefit the giver. 

Here are six top tax perks for savvy giving. 

1) Claim back gift aid 

Donations to charities by individuals are tax free. When you give, make sure you tick the box to claim Gift Aid. This allows the charity to claim back the income tax you have already paid on your donation. 

So, if you donate £100 to a charity, it can claim back Gift Aid at the basic rate of income tax of 20 per cent, which increases your donation to £125 at no extra cost to you. 

But if you are a higher or additional rate taxpayer, the tax break is even more attractive. Since the charity can only claim back tax at the basic rate, you can claim back the remainder. So, if you pay 40 per cent income tax, the charity will claim back 20 per cent and you can claim back a further 20 per cent. 

On a donation of £100, that means that the charity can claim £25 and the giver can also claim £25. You can claim back the tax by filling out a self-assessment tax return, or by contacting Revenue & Customs directly and asking for a refund. 

The perk is even more generous for additional rate taxpayers who pay 45 per cent tax – and in Scotland where higher and additional rates of tax are higher at 41 per cent and 46 per cent respectively.

2) Get money back when you donate goods 

Many high street charity shops, such as the British Heart Foundation and Cancer Research UK, allow you to use Gift Aid for any donations you give, such as clothes, books and bric-a-brac. 

That increases the value of your donation and cuts your tax bill if you are a higher or additional rate taxpayer. 

Just check when you donate if you can register for Gift Aid. The charity should then let you know when the items you donated are sold and how much they were purchased for. 

3) Money back on National Trust and theatre memberships 

Don’t forget that Gift Aid applies to all registered charities. This means that if you have a National Trust membership, or are a member of an arts organisation such as a theatre or gallery that is registered as a charity, you should be able to claim Gift Aid. 

4) Get a child benefit boost 

The High Income Child Benefit Charge gradually withdraws a family’s entitlement to child benefit where one parent earns more than £50,000. 

But giving to charity can help off set these losses. That is because when you give to charity using Gift Aid, your income that is liable for tax is reduced by the amount that you give.

If your income is just above the £50,000 threshold, making a charitable donation can help take it below, making you eligible for child benefit again.

5) Big gains for high earners 

Employees who earn between £100,000 and £125,000 effectively pay a marginal rate of income tax of 60 per cent. That is because not only do they pay 40 per cent income tax, but their tax free allowance is withdrawn by £1 for every £2 that they earn above £100,000. 

Giving to charity can slightly reduce this burden because the income that is liable for tax is reduced by the amount donated. 

Alice Pearson, a partner at accountant Mercer & Hole, says: ‘Where higher rate income tax relief for charitable giving is available, it is important to remember that this needs to be claimed – either by completing a self-assessment tax return or, if you are employed, by asking Revenue & Customs to amend your tax code.’

6) Cut your inheritance tax bill 

Gifts to charities in wills are free from inheritance tax. They raise £3.4billion for UK charities every year, and account for 16 per cent of all fundraised income. 

You may also be able to gift your pension to a charity. If you have a defined contribution pension through your employer, you can use an expression of wish form to state if you want a charity to inherit your pension should you die. Of course, you should discuss this with loved ones first. 

You can also cut the inheritance tax rate on your estate from 40 to 36 per cent if you leave at least ten per cent of your wealth to charity.