Money Matters (Part 6) - Charitable Giving

There are a wide variety of tax efficient ways to donate to charity. If you want to do this, there are many tax incentives and schemes available to help you get the most from the donation. We’ve put together this short article to outline some of the schemes.

In order to claim back a charitable donation, the organisation you give to must be recognised as a charity for tax purposes by HM Revenue and Customs. You can check this by asking the charity to confirm that it has an HMRC charity reference number. Depending on the type of gift you make, you may have to make a claim to receive the tax relief (either on your Self Assessment tax return or by contacting your own Tax Office).

Donations through Gift Aid or a CASC

With this, your donation is treated as if the donor has already deducted basic rate income tax. Charities and CASCs can then subsequently reclaim that tax from HM Revenue & Customs.

If you wish to make a Gift Aid donation, you must pay at least as much Income Tax (and/or Capital Gains Tax) as the amount of tax reclaimed by the charity or CASC. This is currently 25p for every pound you donate. Basic rate tax is 20 per cent, so this means that if you give £10 using Gift Aid, it's worth £12.50 to the charity.

If you make a number of Gift Aid donations, you must pay enough UK tax on the total amount of those donations. If you don't pay enough tax you may have to pay HMRC any shortfall in tax paid.

Giving through your pay or pension

You can give money to charity directly from your pay or company/personal pension using the Payroll Giving scheme.

It costs you less because your donation is given to charity from your gross salary before any tax is taken off - so you don't pay tax on it.

You can give to as many charities as you want and you can cancel your Payroll Giving agreement at any time.

Leaving gifts in your will to charity or CASC

If you leave a gift to a charity or CASC in your will, its value will not be included when valuing your estate (your money, possessions and property) for Inheritance Tax purposes. Inheritance Tax is usually paid on an estate when somebody dies.

Gifts made to a charity in the seven years before your death are exempt from Inheritance Tax.

Keeping records of your donations to charity

You must keep records of your donations to charity to make sure that you claim the correct amount of tax relief and pay the right amount of tax.

For every tax year, you should keep the following records:

·      Details of Gift Aid donations showing the date, the amount and the charities or CASCs involved

·      Legal documents showing the sale or transfer of assets to charity - including share transfer documents or certificates or land transfer documents

·      Any documentation from a charity asking you to sell land or shares on its behalf