Un­der­stand­ing the tax ben­e­fits of giv­ing to oth­ers

We ex­plain how to make your dona­tions go fur­ther

Shares - - MONEY MATTERS - By Laura Suter AJ Bell Per­sonal Fi­nance An­a­lyst

Around Christ­mas many peo­ple choose to give to char­ity, set up reg­u­lar dona­tions for the year ahead or re­view the dona­tions they’re al­ready mak­ing. But how do you de­cide which cause to sup­port and un­der­stand how your money is go­ing to be spent?

How do I know it’s a gen­uine char­ity?

Check for the char­ity regis­tra­tion num­ber, against the data­base on www.gov.uk/find­char­i­ty­in­for­ma­tion

If some­one comes to your door col­lect­ing for char­ity, check they are wear­ing an ID badge and that their col­lec­tion tin is sealed. The Char­ity Com­mis­sion also rec­om­mends ask­ing ques­tions about the cause, as any fundraiser should know this in­for­ma­tion.

If do­nat­ing on­line, find the char­ity’s web­site through a search en­gine, rather than fol­low­ing links, as they may take you to fake web­sites.

How do I know where the money goes?

In re­cent weeks con­cerns have been raised about peo­ple not un­der­stand­ing where char­i­ta­ble dona­tions go.

A num­ber of char­i­ties of­fer the abil­ity to ‘donate a goat’ or ‘donate wa­ter for a fam­ily of four’, and some donors as­sumed their money would be used for that di­rect pur­pose. In­stead, the money goes into the char­ity’s cen­tral pot.

The Char­ity Com­mis­sion also lists the fi­nances of each char­ity with an­nual in­come of more than £500,000, so you can see how much in­come they have, what they spend it on, where it op­er­ates and how many peo­ple they em­ploy.


If you donate money and use Gift Aid, the char­ity will get a boost to any money you donate by claim­ing back the tax due. It means that for every £1 you donate, the char­ity can claim back 25p. You’ll need to fill in a form with the char­ity and be a UK tax­payer, and they do the rest of the work.

If you’re a higher-rate tax­payer you can also claim back money through your tax re­turn. You will get 20% tax re­lief on the full do­na­tion. So if you donate £100, and the char­ity gets £25 back through tax re­lief, then a high­er­rate tax­payer can get back 20% of the £125, which equals £25.

This ef­fec­tively works by in­creas­ing your ba­sic-rate tax band by the amount you donate. So if you donate £1,000, you ba­sic-rate tax thresh­old will in­crease from £46,350 to £47,350, in the cur­rent tax year.


Some em­ploy­ers of­fer the abil­ity to donate to char­ity through the pay­roll. This saves you the has­sle of claim­ing the tax back, as the pay­ment is made be­fore in­come tax is de­ducted from your earn­ings.

This means that for every £100 do­nated, a ba­sic-rate tax­payer only pays £80, a higher-rate tax­payer pays £60 and an ad­di­tional-rate tax­payer will pay £55.

Un­like other salary sac­ri­fice de­duc­tions, you will still pay Na­tional In­sur­ance. To take part your em­ployer will need to run a Pay­roll Giv­ing scheme.


If you give cer­tain as­sets, prop­erty or land away to char­ity you don’t have to pay any cap­i­tal gains tax on it and you can claim in­come tax ben­e­fits.

You can donate as­sets such as listed shares, in­vest­ment funds and prop­erty. You’ll be able to claim in­come tax re­lief on the mar­ket value of those as­sets.

What’s more, you will not have to pay tax on any gains you’ve made on an as­set if you gift it to char­ity. Or­di­nar­ily, you pay cap­i­tal gains tax on any gains each year above the an­nual al­lowance (cur­rently £11,700), at a rate of 10% for ba­sic-rate tax­pay­ers or 20% for higher-rate tax­pay­ers.


If you leave at least 10% of your es­tate to char­ity in your will the rate of in­her­i­tance tax you pay on the rest of your es­tate is re­duced.

That gift to char­ity from your es­tate is free of in­her­i­tance tax, and the rate on the rest of the es­tate, af­ter gifts and al­lowances, is re­duced from 40% to 36%. You can check whether your es­tate will be el­i­gi­ble for the re­duc­tion via the HMRC web­site.

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