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HCR Law Events

7 September 2021

Tax benefits of donating to charity

With fundraising events postponed or cancelled due to the pandemic, charities are anticipating a near 50% drop in their voluntary income. So, what are the tax benefits of giving to charity?

Cash gifts of cash (excluding cryptocurrencies) can benefit from Gift Aid; if you’re a UK taxpayer, the charities you give to can reclaim the basic rate of tax you’ve already paid on your donation. This means that a £1 donation is worth £1.25 to the charity.

If you’re a higher rate taxpayer, you can also claim back the difference between higher rate and basic rate tax on the value of your donation. For a 40% rate taxpayer, that means for every £1 you donate, you can claim back 25p in tax relief.

If your employer has a payroll giving scheme, you can give directly to charity from your pay – before tax is deducted. This means you get tax relief, depending on the rate of tax you pay. For example, if you’re a basic rate taxpayer, giving £1 would only cost you 80p.

As well as cash donations you can donate HMRC qualifying shares, land and property, to charity and get income tax relief on the value of the gift, as well as exemption from Capital Gains Tax.

You need to keep a record of your donations if you want to take them off your total taxable income.

Any money that you leave to a registered charity in your will is not subject to Inheritance Tax. Where you are prepared to leave at least 10% of your total net estate to charity, the overall rate of Inheritance Tax payable on the rest of your estate will reduce to 36%. Whilst this does not increase the amount your beneficiaries will receive, it means that you can leave more to charity and less to HMRC.

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About the Author
Alan Taylor, Trust and Tax Associate Executive

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